Report 2013 - Kawasaki Heavy Industries · This report was created using environment-friendly waterless ... also commissioned with engineering and project ... Urea manufacturing ...

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Year ended March 31, 2013

Report 2013

Kawasaki Heavy Industries, Ltd.

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Printed in JapanSeptember 2013

01 02Kawasaki Report 2013 Solving Social Issues through Business

In 2007, Taiwan High Speed Rail commenced a revenue service as the first

Japanese high-speed rail system to be exported, which makes it possible to

have a trip of 90 minutes between two large cities in the north and south of

Taiwan, Taipei and Kaohsiung. Taiwan High Speed Rail provides immeasurable

economic benefit for business and sightseeing.

The consortium consisting of seven Japanese companies was awarded the

contract of supply and installation of an electrical and mechanical (E&M) system,

and Kawasaki supplied 360 700T series cars as a member in charge of design,

manufacturing and supply of rolling stock.

Variable types of passengers including business people, families, students, etc.,

are enjoying their trips with the 700T series high speed train. Kawasaki takes

much pride in supply of the 700T, the popular train among the people of Taiwan.

Taiwan High Speed Rail

Singapore, currently having a population of more than five million at

high density in the small territory, has been establishing an efficient

public transportation system since the 1980s. The first urban railway

transit system was inaugurated in 1987 and since then the railway network has been expanding as a convenient and comfortable public

transportation system.

Since 1986, Kawasaki has delivered to Singapore a total of 656

cars. The latest type of Kawasaki rolling stock has features of more

passenger capacity at less energy consumption and contributes to

provide Singapore with an enhanced mobility. Kawasaki-brand rolling

stock is indispensable for the highly efficient public transportation

system in Singapore.

Urban Railway System in Singapore

The economies of Asia sustain the livelihoods of

more than four billion people—about 60% of the

world’s population—and continue to grow.

By supplying rolling stock that is optimally suited

to large-volume transportation and a reduced

environmental load, we support the ongoing

development of this continent with its busy

interchange of people, goods, finance

and information.

Powering your potential—Kawasaki

continues on track.

High-speed train cars to Taiwan

Train cars to Singapore

4 billion people

Transportation Systems

Solving Social Issues through Business

To promote a stable energy supply, Singapore has begun building its

first LNG terminal.

At the end of 2012, KHI completed the delivery of two gas engines

for the terminal. The electricity generated by these gas engines will

be for captive use at the LNG terminal. Our gas engines, which boast

the world’s highest generating efficiency, will contribute significantly

to reducing electric power costs, and will achieve low environmental

load operations with their outstanding environmental performance.

KHI gas engines will thus contribute to a stable energy supply for

Singapore, which has developed into one of the world’s greatest cities.

Enhancing Energy Security

India’s economy continues to grow, but because power demand exceeds

supply and the power grid is unreliable, a growing number of

independent power producers (IPPs) are operating distributed

energy systems.

In 2013, KHI received its first order from an Indian IPP. All of the

electric power produced by Kawasaki Green Gas Engine, which boast the

world’s highest generating efficiency along with outstanding

environmental performance, will be sold to electric power companies.

As a contribution to solving India’s serious power shortage, KHI gas

engines will continue to be used in an expanding range of fields.

Offering Solutions for a Serious Electric Power Shortage

Asia is a powerful driver of growth in the

world economy.

By 2035, the International Energy Agency

forecasts that Asia’s annual power demand

will have doubled from its present level to

approximately 15.8 trillion kWh.

One of the most promising sources of energy

for electricity generation is natural gas, which

has a low environmental load and is still

available in plentiful reserves.

To meet the rising demand for natural

gas-powered electricity generating facilities,

KHI is committed to delivering energy solutions

tailored to customer needs.

Kawasaki Green Gas Engine


Energy &Environmental Engineering


15.8trillion kWh

Fatima Fertilizer Company Ltd. has built Pakistan’s largest fertilizer

plant on the outskirts of the city of Sadiqabad in the country’s central

region. Using the natural gas produced in the nearby Mari gas field as

raw material, it manufactures urea and a range of other synthetic

fertilizers from ammonia. The equipment delivered by KHI is the core

facility of the factory and produces 1,500 tons of urea a day. KHI was

also commissioned with engineering and project management

operations for the rest of the plant’s fertilizer manufacturing facilities.

With about half its population engaged in the

agriculture, forestry and fishery sectors,

Pakistan is a major agricultural nation and the

world’s fourth-largest producer of wheat.

Approximately one-third of its land area, or

26.28 million hectares, is devoted to agriculture.

To improve the soil of this vast area and improve

yields, securing supplies of fertilizer in huge

quantities is a very important priority.

KHI won a contract to provide industrial

equipment including a facility for manufacturing

urea, the raw material from which fertilizer is

made. This facility therefore plays an especially

important role in the country’s largest fertilizer

plant. The facility was handed over in 2009 and

is contributing to not only Pakistan’s agricultural

development but also the livelihoods of farming

families.

In the years ahead, KHI will continue with

manufacturing activities to support the

livelihoods of people around the world.

Urea manufacturing facility

Urea Manufacturing Facility for Fertilizer Plant ofFatima Fertilizer Company Ltd.



Industrial Equipment

26.28million hectares

In the past, the Kawasaki Heavy Industries (KHI) Group produced

an Annual Report presenting information on areas such as the

direction of management policy and its business environment and

business strategy, and a CSR Report presenting information on

activities to ensure sustainability. From this fiscal year, however,

to give stakeholders a more comprehensive picture of our

activities, these two separate yearly reports have been integrated

in a single Kawasaki Report.

The KHI Group’s mission statement is “Kawasaki, working as

one for the good of the planet.” This reflects the consistently high

level of agreement and shared focus in our operations between

business activities on one hand and, on the other hand, commit-

ment to sustainability and to resolving the issues facing society.

We would like this report to serve as a way to reinforce

appreciation of this point among our stakeholders and as a basic

channel of communication for suggestions and comments on our

corporate activity and business operations.

Hereafter,the KHI Group is committed to enhanced promotion

of activities that integrate business management with corporate

social responsibility (CSR). In this report, we intend to provide

greater coverage of such activities, continuing this trend in the

next fiscal year’s report and subsequent issues. At the same time,

where there are corporate activities or other aspects we consider

to be unsatisfactory, we intend to report on these together with

ideas for corrective measures.

Contents

Head Offices

Kawasaki Heavy Industries, Ltd.

Shigeru MurayamaPresident

1,671,892,659 (As of March 31, 2013)Number of Shares Issued

¥1,288,881 million (Fiscal year ended March 31, 2013)

Net Sales

34,010 (As of March 31, 2013)Number of Employees

¥104,484 million (As of March 31, 2013)Paid-in CapitalTokyo Head Office:14-5, Kaigan 1-chome, Minato-ku, Tokyo 105-8315, Japan

Kobe Head Office:Kobe Crystal Tower, 1-3, Higashikawasaki-cho 1-chome,Chuo-ku, Kobe, Hyogo 650-8680, Japan

Figures in this report appearing in forecasts of future business performance or similar contexts represent forecasts made by the Company based on information accessible at the time, and are subject to risk and uncertainty. Readers are therefore advised against making investment decisions reliant exclusively on these forecasts of business performance.

Readers should be aware that actual business performance may differ significantly from these forecasts due to a wide range of significant factors arising from changes in the external and internal environment. Significant factors that affect actual business performance include economic conditions in the Company’s business sector, the yen exchange rate against the U.S. dollar and other currencies, and developments in taxation and other systems.

This report not only describes actual past and present conditions at the KHI Group but also includes forward-looking statements based on plans, forecasts, business plans and management policy as of the publication date.

These represent suppositions and judgments based on information available at the time. Due to changes in circumstances, the results and the features of future business operations may differ from the content of such statements.

1. The booklet version (which you are now reading): a digest version presenting information in compact form. 2. The full report: a PDF version on our website supplementing the booklet content with more detailed information.

http://www.khi.co.jp/english/ir/library/annual/index.html http://www.khi.co.jp/english/csr/report/index.htmlThe IR and CSR sections of the KHI Group’s website offer a wider range of information in searchable format, including financial data, share-related data, and data on individual CSR activities. http://www.khi.co.jp/english/ir/index.html (IR) http://www.khi.co.jp/english/csr/index.html (CSR)

3. The detailed environmental report: a PDF version focused exclusively on environment-related content and including environmental data supplements. http://www.khi.co.jp/english/csr/report/detail/index.html

The report is published in three formats according to reader needs.

The report covers Kawasaki Heavy Industries, Ltd., and its 95 consolidated subsidiaries (48 in Japan and 47 overseas) and 17 equity-method nonconsolidated subsidiaries. Some data, however, refer to the parent company alone.

In preparing the report, the editorial office referred to the Environmental Reporting Guidelines (2012 Edition) issued by the Ministry of the Environment and the Sustainability Reporting Guidelines (G3.1 ver.) issued by the Global Reporting Initiative (GRI).

The report covers fiscal 2013 (April 1, 2012 to March 31, 2013), but content referring to its Medium-term Business Plan 2010 (FY2011-2013) also includes activities during fiscal 2011, 2012, and 2014.

Solving Social Issues through Business 01

Transportation Systems Energy & Environmental Engineering Industrial Equipment

Editorial Policy 07

Corporate Profile 08

Message from the Top Management 09

Performance Highlights 15

Business Review & Strategies 17

Ship & Offshore Structure 18

Rolling Stock 19

Aerospace 20

Gas Turbine & Machinery 21

Plant & Infrastructure 22

Motorcycle & Engine 23

Precision Machinery 24

Research and Development 25

KHI Group CSR and Five Themes

KHI Group CSR 27

Value Creation 29

Management 33

Employees 35

Environment 37

Social Contribution 41

The KHI Group’s Second Dialogue with Experts 43

Financial Section 45

Independent Auditor’s Report 82

Directors, Corporate Auditors andExecutive Officers 83

Stock Information 84

Base Introduction 85

Europe, Middle East

700Number of Employees

Net Sales ¥104,861 million

8companies

Japan25,222Number of Employees


48companies

The Americas3,355Number of Employees


15companies

Distribution ofemployees by region

Share of net salesby region

Europe, Middle East

2%

The Americas

10%

Asia, Oceania, etc.

14%

Japan

74% Europe, Middle East

8%

The Americas

26%

Asia, Oceania, etc.

18%

Japan

48%

Asia, Oceania etc.4,733Number of Employees


24companies

Editorial Policy Corporate Profile

KHI Global Network (FY2013)

Publication Formats

Disclaimer

Scope

Guidelines

Period

07 08Kawasaki Report 2013 Kawasaki Report 2013

Value delivered to customers or to society through customers

Breakdown of value delivered

13.1

Total value delivered

Value created

Return of value created

Total value created

Company internal, etc.

Shareholders

Creditors

Distribution of Value to Stakeholders (FY2013)

Business costs (excluding costs for employees, society, and government)

Net sales

Salaries and bonuses

Social contribution expenses

Income taxes, etc.

Value created minus expenses for employees, society, and government

Interest expense

Minority interests in net income plus dividends paid

Increase in retained earnings during period

Value delivered

Business partners

Employees

Administration and government

Amount (billions of yen) Remarks



Society

1,288.8

1,047.5

0.7

190.7

36.7

1,288.8

4.1

22.1

36.7

10.5

Message from the Top Management

09 10Kawasaki Report 2013 Message from the Top Management

I am Shigeru Murayama, the new representative director and president of Kawasaki Heavy Industries, Ltd. I was appointedat a meeting of the Board of Directors following approval by our shareholders at the 190th Ordinary General Meeting of Shareholders held on June 26, 2013.

Before proceeding, as the newly appointed president, I wish to address our stakeholders with an explanation onrecent events.

As you will no doubt have already heard in the media, an extraordinary meeting of the Board of Directors held on June 13, 2013, voted to relieve three directors of their positions as president, senior executive vice president, and senior vice president, respectively.

Further, the same meeting of the Board of Directors resolved officially to terminate negotiations on managementintegration with Mitsui Engineering & Shipbuilding Co., Ltd., and resolved to introduce a new management team with meas president.

This situation came about after the three directors in question attempted to implement executive measures in opposition to the views of the majority of directors and acted generally without due regard for the Board of Directors. For this and related reasons, the Board of Directors was forced to conclude that, from the perspective of corporate governance and compliance, the directors in question were not qualified to bear the core responsibility for the management of KHI.

I wish to express my greatest gratitude to stakeholders for your patience and understanding toward this recent series of decisions made by our corporate organs, which may have caused certain distress and concern. At the same time, I hope that we can rely on your continued support as we focus ongoing efforts on the management of Group operations going forward.

During fiscal 2013, ended March 31, 2013, the world economy saw growth held to modest levels overall under the impact of slackening growth in the Chinese economy and other signs of a deceleration in the emergingeconomies that had hitherto been its driving force. On the domestic front, although progress was made with recovery from the Great East Japan Earthquake, fears of a downturn in the world economy contributed to overall continuing instability.

Against this economic background, the KHI Group achieved an overall increase in the consolidated value of orders for the fiscal year under review, with growth notably in the Ship & Offshore Structure and Rolling Stock segments making up for decreases in the Precision Machinery segment and elsewhere. Net sales in the Precision Machinery segment were impacted by China’s economic slowdown and also fell in the Ship & Offshore Structure segment, but thanks to increases in the Aerospace segment and other areas, the overallfigure equaled that of the previous fiscal year. Operating

income showed improvements thanks to the increased net sales in the Aerospace, the Motorcycle & Engine and other segments, but the overall figure decreased particularly due to a decline in the Precision Machinery and Plant & Infrastructure segments.

As a result of these movements, the consolidated value of orders for the KHI Group grew by ¥57.7 billion fromthe previous fiscal year to ¥1,369.5 billion. Consolidated net sales, meanwhile, decreased by ¥14.8 billion to¥1,288.8 billion, operating income by ¥15.4 billion to ¥42.0 billion, and recurring profit* by ¥24.2 billion to¥39.3 billion. Nevertheless, due to a boost to extraordinary income and reduced tax expenses, net income climbed by ¥7.5 billion to ¥30.8 billion.

In our non-consolidated business results for fiscal 2013, the value of orders totaled ¥1,086.2 billion, net sales ¥983.9 billion, operating income ¥12.5 billion, recurring profit ¥19.4 billion, and net income ¥17.1 billion.

*Recurring profit is used in accounting standards generally accepted in Japan. It is the sum of operating income, net interest income (expense), dividend income, and other non-operating and recurring income items.

Fiscal 2013 Business Results

We will press forward toward the goalof further increasing corporate value.

August 2013President


A5

Fiscal 2014 Forecast

Our Medium-term Business Plan 2010, which we launched in fiscal 2011, concluded in fiscal 2013. In response, the KHI Group announced in April 2013 a new three-year medium-term business plan—MTBP 2013—to start from April 2013. MTBP 2013 sets out a range of initiatives designed not only to maintain the KHI Group’s sustainable growth, but also to outline in more concrete terms the roadmap to achieve Kawasaki Business Vision 2020.The plan sets the following numerical targets for our consolidated results in fiscal 2016, its final year: net sales of ¥1,600.0 billion, operating income of ¥90.0 billion, recurring profit of ¥85.0 billion, and return on invested capital (ROIC) of 11%.

MTBP 2013 and its underpinning Kawasaki Business Vision 2020 express the fundamental approach that we in the recently formed management team intend to follow. We also intend to adhere without deviation to the business policies and numerical targets adopted for each business segment. Our main focus, however, will be on achieving a profit increase rather than an expansion of scale, with foremost priority given to boosting ROIC, and emphasis also on profit figures and profit margin.

Specifically, by the end of fiscal 2014, we intend to have outlined a business portfolio to ensure that we achieve our recurring profit target of ¥85.0 billion for fiscal 2016, the final year of MTBP 2013. This will lay the basis for rapid realization of the recurring profit level ofat least ¥100.0 billion envisaged in Kawasaki BusinessVision 2020.

1. New Medium-term Business Plan

“MTBP 2013” and Kawasaki Business Vision 2020 In terms of our concrete business strategy, we will continue to undertake innovative technology development while sustaining consistent in-house efforts to cut costs through the Kawasaki Production System (KPS) and through further development of our manufacturing capabilities. By also implementing differentiation strategies (next-generation product development, system solutions, brand strategy, and so on) adapted to each of our business operations, we aim to establish market superiority and achieve further improvements in profitability. Specifically, we will work to strengthen our core competences, with a focus on how to achieve an unbeatably competitive differentiation and build a more solid profit base.

As for our approach to the overseas market, we will build a system in which the superior technologies, manufacturing expertise, and outstanding human resources that we have accumulated at our domestic mother factories are input into the respective overseas market. In these overseas markets, taking care to limit risk, we will work together with local enterprises to secure business growth and profits. However, we do not intend to carry out reckless offshore transfer of domestic manufacturing bases in a search for low-cost labor with profit as the only criterion. The origin of our technological capabilities as a manufacturer lies in our development and manufacturing capabilities, which were of course nurtured in Japan. Our approach is therefore to work to refine technology development and manufacturing capabilities at our domestic manufacturing bases, which will act as mother factories coordinating our overseas bases.

Through initiatives of this kind, we will work to attain further development by strengthening the cycle in which the proceeds of our business operations are used for future investment and return to stakeholders.

2. Business Strategy

Fiscal 2014 is expected to see a background of continuing gradual growth in the world economy. The shale gas revolution in the United States has strengthened the mood of recovery, with evidence of increased energy-related demand and an improved employment situation. However, the European economy is still mired in concerns over sovereign debt issues, while in China and other emerging economies we believe that the situation needs to be watched for future trends. As for the domestic economy, in addition to the improved export environment following the reversal of the yen’s appreciation, the effect of expanded investment in public works based on flexible government spending initiatives has contributed to gradual growth. Going forward, the effect of growth-oriented government policies is expected to bring an expansion in private-sector capital investment and an increase in household incomes, which in turn is expected to lead to stable growth.

Our business environment is thus showing a return to a brighter overall picture. Moving into fiscal 2014, we are

Management Policy

committed to making an earnest response to the dip in our business performance in fiscal 2013 by continuing with steady management of our business operations and also working on a range of measures for the realization of Kawasaki Business Vision 2020.

We come now to our fiscal 2014 forecast, for which we assume an exchange rate of ¥95 to the U.S. dollar and ¥120 to the euro. Although consolidated net sales are expected to decrease year on year in the Ship & Offshore Structure and other segments, increases are forecast in other areas including the Aerospace, Rolling Stock, and Motorcycle & Engine segments, so that overall we forecast year-on-year growth of approximately ¥90.0 billion in net sales to ¥1,380.0 billion. On the profit front, by continuing with a range of profit-boosting measures across all operations, including continuation of the vigorous efforts made so far to reduce fixed costs and other expenses and to improve productivity, we forecast consolidated results of ¥60.0 billion for operating income, ¥53.0 billion for recurring profit, and ¥34.0 billion for net income.

In the spirit of our Group Mission—“Kawasaki, working as one for the good of the planet”—the KHI Group aspires to be a business group that is equipped with advanced and comprehensive technological capabilities in a broad range of sectors, allowing us to work in harmony with the global environment to create new value to help achieve a bright and prosperous future society. To work toward the realization of this Group Mission, the KHI Group has formulated a long-term vision—Kawasaki Business Vision 2020—and a concrete implementation

strategy in the form of a medium-term business plan. To give the vision and the business plan a reliable prospect of success, it is essential that we achieve an increase in corporate value to maintain and strengthen the cycle of business development and profit return. In common with the rest of the management team, I understand it as our task to achieve this.

KHI Group Mission

Target profile

Kawasaki, working as one for the good of the planet

An enterprise with a high

level of profitability

based on a strong ability

to adapt to changes in

the business environment

and ongoing investment

for future growth

A company that

upgrades plants in Japan

and actively pursues

business development

overseas

An enterprise that

contributes continuously

to resolving social issues

and meeting stakeholder

expectations through its

business operations

A company that creates

products that incorporate

the ultimate in low

environmental impact

technologies in each

business sector

A company whose

employees have hopes

and dreams and work

with vigor and enthusiasm

Profitability and

investment for growth

Global businessdevelopment and

emphasis on monozukuri(manufacturing)

Coexistence and

co-prosperity

with society

Improvement

of the global

environment

Workplace

environment

development

A company that provides products and services suited to the diverse needs of people around the world through advanced technological

capabilities in three principal business sectors: Land, Sea, and Air Transportation Systems, Energy & Environmental Engineering, and

Industrial Equipment

Transportation Systems Energy & Environmental Engineering Industrial Equipment

Consolidated targets and forecasts

1,288.8

(Billions of yen)

3.3%

39.3

42.0

3.0%

1,380.0

4.3%

53.0

60.0

3.8%

1,600.0

5.6%

85.0

90.0

5.3%

Assumed exchange rate ¥95/US$ ¥95/US$

Before taxROIC

17.3%

15.9%

4.6%

3.4%

Ship & Offshore Structure

Rolling Stock

Aerospace

Motorcycle & Engine

0.0%

12.9%

17.1%

7.5%

3.8%

10.0%

12.7%

7.5%5.3%Gas Turbine & Machinery 4.7%

21.2%Plant & Infrastructure 16.0% 15.0%

Precision Machinery

Total

26.3%

15.3%

14.3%

14.0%

7.4% 11.0%6.1%

131.9%

23.0%

Net debt/equity ratio

Equity ratio

130%

22.1%

110%

23.4%

FY2013 (Actual)

FY2014 (Forecast)

FY2016 (Target)

FY2013 (Actual)

FY2014 (Forecast)

FY2016 (Target)

Net sales

Recurring profit(Ratio to net sales)

Operating income(Ratio to net sales)


We have consistently sought to approach our business operations with an emphasis on “Quality over Quantity.” Over the last few years, however, we feel that the pursuit of the net sales target envisaged in Kawasaki Business Vision 2020 may have received too much attention and not improved our financial position. This is an area that requires an earnest rethink, and we are now determined to reaffirm our commitment to an approach of “Quality over Quantity.”

We thus need to realize “Quality over Quantity”—in other words capital efficiency—and combine it with business growth potential to continuously increase corporate value; establishing a foundation on which to achieve this is the task assigned to us as the new management team. These two goals are in no sense contradictory. The surplus capacity in human resources, capital, and other operational resources that results from the pursuit of efficiency will be transferred to growth sectors, and this “Quality over Quantity” approach will be shared and implemented among all employees.

As a strategy to ensure an approach of “Quality over Quantity,” we will carry out a thorough evaluation of profitability for each product and each business unit, and clearly identify the core competence of each business and its position within our portfolio, clarifying the ideal future profile of our business portfolio. Focusing on business areas projected to have future potential, we will undertake key investment of operational resources in sectors with leading positions within the industry, or that have strong potential to reach such positions, targeting further reinforcement through new product development and mergers and acquisitions. Businesses that over a future period consistently fail to attain the expected profitability level will be subjected to comprehensive structural reform, while withdrawal from business will also be considered where future potential is judged not to exist.

To achieve results within the period of MTBP 2013 by combining capital efficiency with business growth potential, our first step will be to prioritize efficiency to generate surplus investment capacity. We hope to be able to show our stakeholders benefits from these improvements by fiscal 2015.

The KHI Group’s CSR activities are an ongoing effort to realize the Group Mission at ever higher levels. We know that contributing to the future of human society and the global environment will raise the value of the Kawasaki brand, and we promote activities in the five themes described below to realize our goal.

Five Themes

We will use our integrated technological expertise to create values that point the way to the future.

We will always act with integrity and good faith to merit society’s trust.

We will all create a workplace where everyone wants to continue working.

We will pursue “manufacturing that makes the Earth smile.”

We will expand the circle of contribution that links to society and the future.

Value Creation

Management

Employees

Environment

Social Contribution

Realization of theGroup Mission at ever

higher levels

・ We respond to our customers' requirements・ We constantly achieve new heights in technology・ We pursue originality and innovation

Kawasaki Value

We respond to ourcustomers’

requirements.

We pursueoriginality

and innovation.

We constantlyachieve new

heights intechnology.

“Kawasaki,working as one for

the good of the planet”

Group Mission

1. TrustAs an integrated technology leader, the Kawasaki Group is committed to providing high-performance products and services of superior safety and quality. By doing so, we will win the trust of our customers and the community.

2. Harmonious coexistenceThe importance of corporate social responsibility (CSR) permeates all aspects of our business. This stance reflects the Kawasaki Group's corporate ideal of harmonious coexistence with the environment, society as a whole, local communities and individuals.

3. PeopleThe Kawasaki Group's corporate culture is built on integrity, vitality, organizational strength and mutual respect for people through all levels of the Group. We nurture a global team for a global era.

4. StrategyThe Kawasaki Group pursues continuous enhancement of profitability and corporate value based on three guiding principles—selectively focusing resources on strategic businesses; emphasizing quality over quantity; and employing prudent risk management.

The Kawasaki Group Management Principles

1 . Always look at the bigger picture. Think and act from a long-term, global perspective.

2 . Meet difficult challenges head-on. Aim high and never be afraid to try something new.

3 . Be driven by your aspirations and goals. Work toward success by always dedicating yourself to your tasks.

4 . Earn the trust of the community through high ethical standards and the example you set for others.

5 . Keep striving for self-improvement. Act on your own initiative as a confident professional.

6 . Be a part of Team Kawasaki. Share your pride and sense of fulfillment in a job well done.

The Kawasaki Group Code of Conduct

Basic Concept3. Ensuring Quality over Quantity

CSR Activities

To Our Stakeholders

As approved at the general meeting of shareholders held at the end of June 2013, KHI took steps to further strengthen management oversight functions by recruiting outside directors independent of the execution of operations and appointing three independent officers, as defined by the Tokyo Stock Exchange, including outside corporate auditors. Going forward, we aim to strengthen corporate governance through sustained efforts to increase the transparency and objectivity of our management.

In our organizational management, we believe that the internal company system that we have adopted, by virtue of features such as its financial independence and devolution of powers, is suited to the format of our business, which handles a wide range of diverse products. It is generally said that the internal company system suffers from a strong centrifugal force between Head Office and the internal companies, but at KHI the Head Office is equipped with sufficient company-wide horizontal functions to counter this tendency. Additionally, our culture of openness, which encourages full and free discussion of issues regardless of organizational affiliation or professional grade and concerted effort once the decision has been taken, overcomes the disadvantages of the internal company system and is the greatest driver of organizational synergies. We will all join together in reaffirming these positive aspects of our corporate culture. Among the roles required of the Head Office under the internal company system are check functions based on management indicators and functions to support and promote business activity, all of which we aim to strengthen further.

On the employment front, to create a workplace where employees experience strong motivation and can demonstrate their full potential, we need to create strong business operations, essential to which is the securing and cultivation of outstanding human resources. By further refining our superior technological capabilities and products, and continuing to communicate their appeal, we will keep a focus on creating and maintaining quality employment opportunities as an important goal of our operations.

Going forward, we will seek to achieve an even more appropriate form of organizational management. We also intend to address the issue of creating an organizational framework and related systems that are adapted to realizing our future business portfolio.

With the aim of fulfilling our Group Mission at a higher level, the KHI Group sets itself targets from the perspective of corporate social responsibility (CSR) that are adapted to the needs of the times and current conditions.

Across the range of CSR, our activities are based on the setting of a “target profile” for each thematic area, but we also actively consult external opinion through our Dialogues with Experts and other events as part of efforts to improve public perceptions of our organization.

In the area of compliance, in addition to putting in place regulations on corporate ethics and providing grade-specific training and e-learning, we distribute a range of guidance handbooks and take other measures to ensure full familiarity with the laws and regulations which staff need to observe. Going forward, we will strive to further enhancecompliance measures.

In the field of environmental management, we are working to strengthen environmental management on the basis of our newly formulated Eighth Environmental Management Activities Plan. Additionally, as a measure to reduce CO2 emissions and energy consumption, we plan to roll out to all business sites an energy visualization system successfully operated at our model factory.

Meanwhile, we are working on measures to support child-rearing as part of a strategy to improve work-life balance and introducing measures to create diversity-friendly workplace environments, for instance by recruiting more international human resources and ensuring a barrier-free environment at all business sites. We will also step up measures to promote the employment of peoplewith disabilities.

In concluding my greeting as the newly appointed president, I wish to once again express my greatest gratitude to stakeholders for your patience and understanding toward the recent abrupt changes in management, and take this opportunity to vow that, under my leadership, our officers and employees will unite to

press forward toward the goals of restoring trust and further increasing corporate value. In these efforts, I request your increased support and cooperation.

4. Strengthening Corporate Governance and

Organizational Management

Apart from these measures, our other social contributionactivities in fiscal 2013 included the holding of handicraft workshops in the earthquake-hit Tohoku region. Based on the use of KHI products as workshop materials, these events aimed to help educate the next generation and support recovery from the disaster. We intend to continue with activities of this kind in fiscal 2014 and beyond.

Going forward, in addition to further deepening the coordination between business management and CSR, we intend to promote initiatives at the level of the global Group (the entire KHI Group including overseas operations) and to step up our cooperation with business partners in the field of CSR.

15 16Kawasaki Report 2013

Performance Highlights

2013 2012 2011 2013

Millions of yen

Note: All dollar figures have been translated into yen at ¥93.99 to US$1, the approximate rate of exchange at March 31, 2013.

Thousands of U.S. dollars

¥1,288,881

42,062

39,328

30,864

44,039

¥1,303,778

57,484

63,627

23,323

24,569

¥1,226,949

42,628

49,136

25,965

18,252

$13,712,958

447,515

418,433

328,375

468,554

¥28,101 ¥84,737 ¥81,929 $298,978

(81,160) (65,959) (52,942) (863,496)

(53,058) 18,778 28,986 (564,517)

57,671 (26,831) (18,862) 613,586

38,525 34,316 47,233 409,884

432,649 404,054 401,753 4,603,138

460,105 441,897 425,322 4,895,255

85,534 86,918 77,409 910,040

1,016,814 967,186 951,719 10,818,321

325,239 293,536 295,029 3,460,364

124,236 101,416 107,529 1,321,804

1,466,290 1,362,139 1,354,278 15,600,489

281,063 310,775 319,272 2,990,350

484,653 407,166 429,144 5,156,433

350,693 328,274 308,428 3,731,172

1,116,409 1,046,216 1,056,844 11,877,955

357,379 335,270 317,176 3,802,308

(19,139) (29,216) (28,120) (203,627)

11,641 9,868 8,377 123,853

349,881 315,922 297,433 3,722,534

1,466,290 1,362,139 1,354,278 15,600,489

252 258

(millions of yen)

34,010

687

279

33,267

796 737

32,706 (persons)

(persons)

(persons)

(thousand t-CO2)

25,222 24,770 24,511

8,788 8,498 8,195

Net sales

Operating income

Recurring profit

Net income

Comprehensive income

Net cash provided by operating activities

Net cash used for investing activities

Free cash flow

Net cash provided by (used for) financing activities

Cash on hand and in banks

Trade receivables (notes and accounts receivables)

Inventories

Other current assets

Current assets

Total fixed assets

Total investments and other assets

Total assets

Trade payables (notes and accounts payables)

Interest-bearing debt

Other liabilities

Total liabilities

Total shareholders' equity

Total accumulated other comprehensive income

Minority interests

Net assets

Liabilities and net assets

CO2 emissions (non-consolidated)

Expenditure on social contribution activity

Number of employees

Domestic

Overseas

Years ended March 31

Cash flow from operating activities / interest expense

As the fiscal 2009 balance of cashflows from operating activities wasnegative, no figure is given for interestcoverage ratio.

Since fiscal 2011, the figure for expenditureon social contribution activity has been basedon an altered range of corporate activitiesand organizations.

1.50

2.21

1.10

1.75

1.25

737 796

687

424

316

(Millionsof yen)

0

400

800

0.0

0.5

1.0

2.0

1.5

2.5

Net income / Shareholders’ equity (Income before income taxes and minority interests + Interest expense) / Invested capital

Net interest-bearing debt / Shareholders’ equity

32.3 32.3 32.7 33.3 34.0

8.0 7.9

24.3 24.4

8.2

24.5

8.5

24.8

8.8

25.2

0

5

15

25

35

10

20

30

Number of employees (domestic and overseas) Domestic Overseas

(Thousands ofemployees)

Return on equity

–4

–2

0

2

4

6

8

10

(%)

3.8

–3.8

9.1

7.8

9.5

0

1

2

3

4

5

6

7

8(%)

4.5

0.2

6.0

7.4

6.1

(%)

(%)

123.0

142.2132.1

121.8131.9

0

50

100

150

200

(Times)

5.5

174.1 166.1 173.0183.0

202.317.2

19.0

6.7

0

5

10

15

20

20132012201120102009

20132012201120102009 20132012201120102009

(103t -CO2)

221

241258 252

279

0

50

100

150

200

250

300

CO2 emissions (non-consolidated)

(Yen)(Yen)

7.0

–6.5

3.0 3.0

15.5

3.0

13.9

5.0

18.4

5.0

–10

–5

0

5

10

15

20

Dividends per shareNet assets per shareInterest coverage ratio Net income per share

Return on invested capital Debt equity ratio

0

50

100

150

200

250

20132009 2010 2011 2012 20132009 2010 2011 2012

20132012201120102009

20132012201120102009

20132009 2010 2011 2012 20132009 2010 2011 2012

Expenditure on socialcontribution activity(left-axis)Recurring profit ratio(right-axis)

CO2 emissions are impacted bythe electricity emission factor.

Performance Highlights

7.0%

10.0%

18.5%

16.0%

8.9%

19.5%

10.1%

Business Review & Strategies

Business Results for Fiscal 2013 and Outlook for Fiscal 2014

Key Strategies of the Medium-term Business Plan 2013 (FY2014–2016)

LNG carrier ENERGY HORIZON


Although the unbalanced appreciation of the yen, particularly relative to the Korean won, is now being corrected, the shipping and shipbuilding markets continue to stagnate and a proper recovery in tonnage value has yet to emerge. On the other hand, driven notably by global environmental issues and the rising price of fuel oil, shipping companies are showing heightened interest in saving energy and reducing the environmental load.

Against this background, in Japan, we are establishing the superiority of our technology in LNG and LPG carriers and submarines and by fulfilling the role of a center for development of advanced technology in energy saving, environmental load reduction, and other areas.

Turning to overseas operations, two joint ventures in China (NACKS*1 and DACKS*2) have established a steady record of performance. In the projects, we are targeting further improvements in price competitiveness through cost reductions. We are also engaged in a joint venture in Brazil centered on construction of drill ships. Here we will ensure the smooth progress of the project by assisting with the construction of the shipyard, the design and construction of drill ships, and other support activities.

Consolidated orders received totaled ¥105.7 billion, a large increase of ¥65.8 billion from the previous fiscal year. They included orders for one submarine and five carriers, including LNG carriers.

Consolidated net sales decreased ¥23.1 billion year on year to ¥90.3 billion as growth in construction of liquefied gas carriers, including LNG and LPG carriers, was offset by a decline in construction of other classes of vessels, most notably Capesize bulk carriers.

Despite the drop in net sales, operating income, mainly supported by cost reductions and the effects of yen depreciation, totaled ¥4.1 billion, on a par with the previous fiscal year.

For fiscal 2014, we expect the consolidated value of orders to be ¥120 billion, net sales to be ¥70 billion and operating income to be ¥0 billion.

Establish the superiority of existing businesses and secure our role as a center for advanced technology development in energy saving, environmental load reduction, and other areas. Strengthen our functions as the mother factory for overseas businesses.

Japanese operations

Maintain and improve the profitability of Chinese joint ventures. Support the smooth start-up of a project in Brazil.

Overseas operations

Operating income 8.4

Company Main Products

Composition of net sales







Net sales

Operating income

FY2013 (billions of yen)

LNG carriers

LPG carriers

VLCCs

Bulk carriers

Submarines

Offshore structures

Ship & Offshore Structure p. 18

Electric train cars (including Shinkansen)

Electric and diesel locomotives

Passenger coaches

Gigacell (High-Capacity, Full Sealed Ni-MH Battery)

Rolling Stock p. 19

Net sales 129.9

2.2Operating income


Aircraft for Japan’s Ministry of Defense

Component parts for commercial aircrafts

Commercial helicopter

Missiles / Space equipment

Aerospace p. 20

Net sales 239.1

Operating income


14.8

Gas Turbine & Machinery p. 21


Jet engines

Gas turbine cogeneration system

Gas engines

Diesel engines

Gas turbines and steam turbines for marine and land

Marine propulsion system / Aerodynamic machinery

Net sales 207.0

Operating income 7.0

Plant & Infrastructure p. 22

Net sales 115.8

Operating income


9.7

Industrial plants (cement, fertilizer and others)

Power plants

LNG tanks

Municipal refuse incineration plants

Tunnel boring machines

Crushing machines

Motorcycles

All-Terrain Vehicles (ATVs)

Utility Vehicles

Personal Watercraft

General-purpose Gasoline Engines

Motorcycle & Engine p. 23

Net sales 251.8

Operating income


2.3

Precision Machinery p. 24

Net sales 130.4


Hydraulic components (pumps, motors and valves)

Hydraulic systems for industrial use

Hydraulic marine machinery

Precision Machinery / Electric-powered devices

Industrial Robots

6.0

90.3

4.1

Approach to Social Issues

1

2

Contributing to the resolution of global issues including energy saving and environmental load reduction through marine transport solutions that support comfortable lifestyles around the worldContributing to a materially secure future through participation in marine development to access a new store of natural resources

*1 Nantong COSCO KHI Ship Engineering Co., Ltd.

*2 Dalian COSCO KHI Ship Engineering Co., Ltd.

17 18Kawasaki Report 2013 Business Review & Strategies

Net sales

Years Ended/Ending March 31 (Billions of yen)


118.4 113.590.3

135.0

2011 2012 2013

(Actual)

70.0

2014(Forecast*)

2016(Vision)

Operating income (loss)Ratio of operating income (loss) to sales

2016(Vision)

5%

0%2011

–1.0

3.9 4.1

0

2012 2013 2014

(Actual)(Forecast*)

Financial Highlights

*As of April 25, 2013

10

5

0


1

2

Provision of a safe and environment-friendly rolling stock systemContribution to the construction of transport infrastructure thatunderpins economic development in emerging nations


1

2

Contributing to reducing environmental load using carbon fiber composite technologyContributing to development ofthe aerospace industry including human resources development and passing on technical skills to the next generation

BK117 C-2 helicopter

Aerospace

In the defense aircraft business, we have already begun mass production of the P-1 patrol aircraft and the C-2 transport aircraft, which will be the core of our defense business going forward. To establish these two aircraft as the cornerstones of our sales and profits strategy and thereby place our defense business on a still firmer footing, we are establishing a mass production system at the Gifu Works that also covers repairs and spare parts supply, and we will work to branch out the system to derivative aircraft. Concurrently, we are targeting R&D at new projects and other forms of business expansion and will deploy our technological expertise as a system integrator to secure contracts and expand market share in the field of defense.

In the commercial aircraft business, meanwhile, continuing expansion of demand is expected in the medium to long term. To adapt to increased production of component parts for the Boeing 787, we will further boost production capacity at the Nagoya Works and target cost reductions. In addition, to maintain a stable and high rate of production in the manufacture of component parts for the Boeing 777, we are upgrading our production systems including the Gifu Works. Going forward, we will draw on the record of performance and expertise we have built up so far, to be an energetic participant in the development and production of new aircraft models and the full range of derivative aircraft.

Growth was recorded in orders received for component parts for the Boeing 777 and 787. However, the consolidated value of orders declined ¥43.7 billion, to ¥283.4 billion, decreasing in comparison with the previous fiscal year, when large-scale contracts had been received from Japan’s Ministry of Defense.

Growth in Ministry of Defense projects such as the C-2 transport aircraft and the increased sales of Boeing 777 and 787 component parts helped to boost consolidated net sales, which rose ¥32.5 billion from the previous fiscal year, to ¥239.1 billion.

Operating income posted substantial growth of ¥7.0 billion year on year, to ¥14.8 billion, due to stronger net sales, cost reductions, and other factors.




Establish a system for mass production of P-1 patrol aircraft and C-2 transport aircraft and branch out to derivative aircraft

Defense

Adapt for increased production of component parts for the Boeing 787 and branch out to derivative aircraft

Commercial



R188 subway cars for MTA New York City Transit

Rolling Stock

Recent years have seen an upswing in infrastructure investment in emerging nations. At the same time, developed nations have planned numerous projects in areas such as the construction of high-speed railways and upgrades of existing networks, as well as the creation or expansion of urban transport systems. As a result, worldwide long-term growth in demand in the rolling stock business is expected.

Against this background, KHI will draw on its strengths in advanced technological expertise and high quality to not only maintain its market share in the Japanese market, but also attain its vision by achieving balanced growth in the three markets of Japan, North America and Asia. In the North American market, for example, we are leveraging new products in the form of the K-Star Express, a new semi high-speed passenger coach for the U.S. market and the efSET (Environmentally Friendly Super Express Train), a new high-speed train for the overseas market. We are also maximizing the advantages of two local production facilities to expand on our record of numerous successful projects in North America, which includes delivery of more than 2,000 cars to the New York City Transit Authority. In the Asian market, we are working to maintain and develop local partnerships to establish optimal project delivery systems and strengthen system integration capabilities.

Orders received increased ¥58.3 billion year on year, to ¥124.4 billion, mainly reflecting orders received for Taiwan’s high-speed rail cars and Singapore’s subway cars.

Domestic net sales expanded on the back of increased sales to the Japan Railways companies, but decrease in overseas net sales contributed to an overall lack of movement in net sales, which approximated the previous fiscal year’s total at ¥129.9 billion.

Operating income declined ¥2.9 billion from the previous fiscal year, to ¥2.2 billion, due to the reduced profitability of overseas projects.

For fiscal 2014, we expect orders received to be ¥160 billion, net sales to be ¥155 billion and operating income to be ¥6 billion.

Achieve profit growth in North America from our entire processing system, which ranges from car body fabrication through final assembly, and newproduct lineup

Strengthen competitiveness in the Asian market by enhancing capacity for railroad system projects and optimal project delivery framework


Net salesYears Ended/Ending March 31 (Billions of yen)

270.0

2011 2012 2013

290.0

2014 2016


Net sales Years Ended/Ending March 31 (Billions of yen)

2016

10%

5%

0%

15.0

7.5

02011 2012 2013 2014

131.1 132.6 129.9

180.0

2011 2012 2013

155.0

2014 2016



8.1

5.1

2.2

13.0

6.0

Operating incomeRatio of operating income to sales


(Actual)(Forecast*) (Vision)


(Actual)(Forecast*) (Vision)(Actual)

(Forecast*) (Vision)

196.8 206.5239.1


Operating income Ratio of operating income to sales

2016

10%

5%

0%

20

10

02011 2012 2013 2014


3.0

7.8

14.8

20.019.0

Ammonia and urea plants in Mary, Turkmenistan

Plant & Infrastructure

We are engaged in a wide-ranging variety of businesses, from manufacturing plants for cement, fertilizer and other products to constructing LNG tanks and municipal refuse incineration facilities, and deliver high-quality products with our engineering capabilities built up over many years. To further boost our engineering capabilities, we are working to develop human resources and strengthen project delivery systems.

On the technology front, in addition to improving the added value of our superior technologies, we are standardizing design across the board to achieve stable quality, shorter delivery lead times, and cost reductions. In the commercialization of new products and technologies, we use measures such as working in coordination with our Corporate Technology Division and other measures to integrate intellectual property Group-wide and promote commercialization at an early stage.

To expand our market share in emerging nations and resource-rich countries against a background of rising worldwide energy demand, we are seeking active launches in overseas markets of product groups that have proven to be strongly competitive in the domestic Japanese market. At the same time, we are enhancing our product line and, through joint operations with overseas partners, improving our engineering, procurement and construction (EPC) capabilities.

Positive factors included orders received for cryogenic tanks for the Ichthys LNG Project. Nevertheless, reflecting reductions in domestic LNG storage tank projects, material handling systems, and other areas, the consolidated value of orders fell ¥5.6 billion, to ¥113.6 billion.

Net sales were supported by the continuing robust sales of LNG storage tank projects as well as by sales growth in other areas, such as material handling systems and municipal waste incineration plants. However, due to decreases in major projects for overseas clients, consolidated net sales shrank ¥6.9 billion year on year, to ¥115.8 billion.

Due to the fall in net sales and the narrowed profit margin, operating income fell ¥4.3 billion year on year, to ¥9.7 billion.




Strengthen delivery systems for all project types

Improve and standardize existing technologies and promote early commercialization of next-generation core products

Enhance the product lineup and build partnerships in overseas markets

Use the newly established Energy Solutions Division to strengthen our response to increased energy demand

Expand the commercial aircraft engine business and secure stable profits

Expand the marine propulsion systems business targeting the oil- and gas-related offshore market


1

2

Contributing to global environment conservation and CO2 reduction through products and technologyContributing to the creation of social infrastructure in emerging nations


1

2

Contributing to the stable supply of clean energyDelivery of solutions to diversifying energy and transportation needs



Gas Turbine & Machinery

In the energy sector, we set up the Energy Solutions Division to strengthen our response to increased energy demand from emerging nations, as well as to heightened demand for distributed power sources following the revision of energy policies after the Great East Japan Earthquake. By transcending the previous product-based divisional structure to combine and integrate key hardware elements, the new division will address the needs of a wider customer base and strengthen our ability to present energy solutions.

In the transportation equipment sector, where increased demand for aircraft is expected, we are moving ahead with mass production of the Trent1000 engine for the Boeing 787 and with development of the Trent XWB engine for the Airbus A350 XWB and the PW1100G-JM engine for the Airbus A320neo. While putting in place an effective production system for these new projects, we will reduce costs to promote stable profits. Going forward, we will continue with operations as a module supplier involved in joint international development from the basic design stage.

Concurrently, with the upswing in exploitation of offshore resources driven by the rise in worldwide energy demand, we are working to grow our business in marine propulsion systems with products such as shuttle tankers and drill ships for use in the oil- and gas-related offshore market.

Led by increased orders of component parts for commercial aircraft jet engines, the consolidated value of orders increased by ¥28.2 billion from the previous fiscal year, to ¥255.5 billion.

Reduced sales of marine diesel engines and related sectors were counterbalanced by growth in areas including component parts for commercial aircraft jet engines and gas engines. As a result, net sales grew ¥12.3 billion year on year, to ¥207.0 billion.

Operating income dropped ¥0.7 billion, however, to ¥7.0 billion, due mainly to allocation of non-recurring cost for new projects.



8.0

20162011 2012 2013 2014


14.1


20162011 2012 2013 2014

2011 2012 2013 2014 2016





Gas engine power plant for Nihon Techno's Sodegaura Green Power

Gas turbine co-generation system PUC300D


10%

5%

0%

15.0

7.5

0

9.57.7 7.0

13.011.0

250.0

185.0202.6 194.6 207.0

7.0

9.7

10%

5%

0%

15.0

7.5

0

2011 2012 2013 2014 2016

140.0115.0

89.0122.8 115.8

8.2








Improve our brand strength: continue with development and sale of stronglycompetitive models that deliver the joy of riding to consumers in line with our keyconcepts of “Fun to Ride,” “Ease of Riding” and “Friendly to the Environment”

Motorcycle & Engine

Motorcycle sales to Europe decreased, but higher sales to the United Statesand emerging markets, especially Indonesia, helped to boost consolidated netsales ¥16.6 billion year on year, to ¥251.8 billion.

Consolidated operating income totaled ¥2.3 billion, a ¥5.3 billionyear-on-year improvement largely attributable to sales growth and improvedprofitability.

For fiscal 2014, we expect net sales to be ¥290 billion and operatingincome to be ¥10 billion.


In the developed countries market, we have continued to develop and launchstrongly competitive models and thereby boosted our brand strength. A benefitfrom this is that our presence as a premium brand has also strengthened inemerging markets, where we have established a business base for achieving highprofitability. In developed countries, where there is little prospect of a majormarket recovery and as our focus is on profitability rather than quantitativegrowth, we will concentrate on further improving our brand strength.

In emerging markets, further expansion is expected on the back of economicgrowth. To strengthen our position in the leisure motorcycle field, where wealready enjoy a competitive lead, we are steadily capturing growing marketdemand through strategies including expansion of production capacity at localfactories, continual launches of strategic new models, expansion of our businessin India, and penetration of the Chinese market.

In the general-purpose engine business, we will strengthen our profit basethrough the development and market release of new engine models and theestablishment of a production system with bases in the United States and China.

Hydraulic Components: Maintain a high share in the hydraulic excavator sector anddiversify our business structure by expanding sales beyond this sector.Expand sales in the global market and achieve an optimal global production system.

Industrial Robots: Further strengthen operations for automotive andsemiconductor sectors, expand into emerging markets, and open up new sectors

Expand our business in emerging markets: strengthen our position in the leisure

motorcycle field




The orders received totaled ¥109.7 billion, a steep ¥64.8 billion year-on-yeardecline mainly due to reduced demand for hydraulic equipment for construction machinery in emerging market economies, most notably China.

This downshift in emerging market, particularly Chinese, demand for hydraulicequipment for construction machinery resulted in a large decline in sales also.Net sales were down ¥44.6 billion year on year to ¥130.4 billion.

Operating income totaled ¥8.4 billion, a steep decline of ¥18.1 billion year onyear, largely due to the sales decline and growth in fixed expenses stemmingfrom capital investments in the previous fiscal year.

For fiscal 2014, we expect the consolidated orders received to be ¥150 billion, net sales to be ¥140 billion and operating income to be ¥14 billion.

Product development focused onenergy saving and environmental adaptationContribution to provision ofinfrastructure in emerging markets

Fulfillment of both the requirementsof a low-carbon society and deliveryof " Fun to Ride", "Ease of Riding" to peopleProduct development to match theneeds of emerging markets andbranching out of production bases

In the Hydraulic Machinery business unit, to maintain our high market share inthe hydraulic excavator sector, we will work to realize cutting-edge hydraulicequipment technology and improve systematization technology. We will alsopromote business diversification through expanded sales of hydraulic equipmentfor agricultural machinery and for construction machinery other than the powerhydraulic excavator. As a response to globalization, following our entry intoChina, we have set up a new company in the expected future growth market ofIndia that began production in 2012. We have thus established a system with sixcenters worldwide in Japan, the United Kingdom, the United States, South Korea,China and India. In this way, we aim to achieve a flexible response to rapidglobalization and Group-wide optimization.

Meanwhile, in the Industrial Robots business unit, to make a rapid advancetoward globalization, we will boost cost-competitiveness to facilitate expansionin emerging markets and reinforce the automotive and semiconductor sectors. Toopen up new sectors, we will develop user-friendly technology and unearthlatent demand for automation.



300.0290.0

251.8235.2234.4

Operating income (loss)Ratio of operating income (loss) to sales

15.0

7.5

–7.5

0 –4.9 –2.92.3

15.0

10.0

10%

5%

0%

20162011 2012 2013 2014


2011 2012 2013 2014 2016





20162011 2012 2013 2014


26.6

8.4

14.0



140.3175.0

130.4 140.0

190.0

2011 2012 2013 2014 2016

20%

10%

0%

25.0

12.5

0


22.3 22.0




Promoting Vision-Oriented R&D with an Eye to the Future

Keeping a careful watch on the continuing rapid growth in

the emerging markets of Asia and other regions and on

global issues in areas such as energy and the environment,

the Corporate Technology Division devotes its greatest

energies to supporting new product development and

product improvement. In parallel, however, we continue to

take on the challenge of developing bold new businesses

that target future markets.

By tapping into dynamic trends in the wider world to

create our vision of the future and acknowledging the tasks

that need to be carried out, we are energetically pushing

forward with R&D to create the new products, businesses

and solutions that will be needed in the society of the

future, as well as the core components and innovative

production technology that are indispensable to them.

The development projects we are currently working on

include energy solutions that deliver, at the lowest cost and

with outstanding environmental performance, the electric

power and fuel required by customers not only in Japan

but also in emerging nations and elsewhere; and

superconducting motors with compact bodies that generate

enormous power. In addition, to build a hydrogen-utilizing

society in which energy is supplied by hydrogen-based

fuel and our streets are busy with fuel cell vehicles, we are

engaged in developing technologies based on the concept

of the CO2-free hydrogen chain, which combines the

benefits of stable energy supply with CO2 reduction. These

technology development projects, in areas from the

production and transport of hydrogen to its storage and

utilization, are being tackled enthusiastically through

teamwork involving relevant business divisions, Head

Office divisions, and the Corporate Technology Division in

an approach that emphasizes

commercial viability and includes

tie-ups with experienced

external partners.

Senior Vice President, General Manager, Corporate Technology Division

Minoru Makimura

In its approach to R&D activities, the KHI Group keeps in

mind a continual picture of the lifestyles and the society of

the future. In addition to our existing markets in developed

countries, it is essential to respond to diverse customer

needs in emerging nations that are experiencing rapid

economic growth and in resource-rich nations. To do this,

we promote new product and business development and

engage in development activities aimed, for example, at

reinforcing product competitiveness and boosting quality

and productivity. As part of this policy, particularly in the

case of important and challenging development projects,

the Corporate Technology Division (our corporate R&D

division) works in close coordination with business

divisions to create a shared business strategy covering

market needs and product development goals as a way to

deliver well-timed and innovative products.

With its diverse products and wide range of

technologies, the KHI Group seeks to “create new and

powerful strength through synergistic effects.” To promote

this, the development and production teams of our

business divisions and the Corporate Technology Division

serve as the interlocking threads of a network that is knit

together into a flexible but resilient collaborative system,

working to create stable foundations for our business

operations and to expand our business domains.

Research and Development

Since the KHI Group commercialized Japan’s first

industrial robot in 1969, we have applied robot

technology in many different areas and strived to

advance its technology.

One example is the automated cell culture system,

developed with an eye to medical treatment in the

future, which utilizes the advanced control,

mechanical and cleaning technology that we acquired

in developing robot technology for semiconductor

manufacturing equipment.

Cell culture operations are largely performed by

experienced technicians who skillfully handle

equipment and chemical solutions. We have

automated this delicate procedure using our robot

technology. In 2008, the Plant & Infrastructure

Company began selling our automated cell culture

system as an “expert that never gets tired” and that

stably performs mass cell culturing, and it has already

been used in the field of drug discovery. Induced

pluripotent stem (iPS) cells are versatile cells that can

grow into any cell type. They are expected to be used

in developing drugs for diseases that have no

effective cure, such as Parkinson’s disease, and in

regenerative medicine. To realize practical use of iPS

cells, stable culturing of high-quality iPS cells is

needed. In June 2010, using our automated cell

culture system, we succeeded in automatic culturing

of iPS cells for the first time in the world.

Currently, we are collaborating with the Center for

iPS Cell Research and Application, led by Professor

Shinya Yamanaka of Kyoto University, as a member

of a research association working on a project* to

accelerate the industrial application of stem cells. We

are researching and developing technology for the

mass culturing of high-quality cells. Meanwhile, as

the first step to develop our business in the world

market, we have begun research aimed at clinical use

overseas through an international project* .

We are working now on marketing (market

creation) alongside the R&D outlined above and

seeking to contribute to the future of medicine.

Topic Automated iPS Cell Culture System

* Projects supported by New Energy and Industrial Technology Development Organization (NEDO)

iPS cells

Regenerative medicine Drug discovery

Use in new drug development for treating incurable diseases

Creating New Products and New Businesses with the Combined Strengths of Kawasaki

Automatic operation of cell culturing

Appearance of the system

Regeneration of human tissues such as the retina

25 26Kawasaki Report 2013 Research and Development

R&D Costs

High-efficiency gas turbines

Large gas engines

LNG fuel-driven ships

Medium- to high-speed rolling stock for developed countries

Transportation systems

Energy & environmentalengineering

Motorcycles for global market

New-generation aircraft High-speed hydraulic motorsHigh-precision robots

Offshore equipment for resource exploitation

Industrial equipment

37.0 39.9 41.750

40

30

20

10

FY2011 FY2012 FY20130

(Billions of yen)

ValueCreation

Overall

Management

Employees

Environment

Socialcontribution

Categories and Action Goals

CSR overall

Product development

Product liability

Customer satisfaction

Corporate governance

Compliance

Risk management

Information security

Information disclosure,IR activities

Business partners

Occupational safetyand health

Human resourcesdevelopment

Human rights

Labor

Global environment

Local communitiesand Japanese society

Internationalcommunity

Action goalsCategories

Clearly state the KHI Group’s social responsibility that is communicated toemployees Group-wide, and have an implementation system in place

・ Update CSR and communicate to the Group・ Support global operations (coordinate with the CSR Division and others)・ Ensure familiarity with CSR through site meetings

・ Continue and expand dialogue, and integrate the SRI index into CSR activities・ Enhance labor-management negotiations and direct dialogue between managers and employees

・Promote action on human rights issues at the global Group levelRespect the Global Compact, UN Millennium Development Goals, ISO 26000,and other international CSR-related codes of conduct

Target profile Measures

and business operationsListen to stakeholders’ opinion and reflect it in corporate activities

We will use our integrated technological expertise to create values thatpoint the way to the future.

We will always act with integrity and good faith to merit society’s trust.

We will all create a workplace where everyone wants to continue working.

We will pursue “manufacturing that makes the Earth smile.”

We will expand the circle of contribution that links to society andthe future.

Value Creation

Employees

Environment

Social Contribution

Management

Five Themes

The KHI Group’s CSR activities embrace five themes. Within each theme, we have established individual categories, for each

of which there are set action goals.

Building the KHI Group CSR Framework, and Issues for Action

Measures during the Medium-term Business Plan 2013 (FY2014–2016)

27 28Kawasaki Report 2013 KHI Group CSR

There is a wide range of expectations from society

regarding business enterprises. We collect and collate

information on these from a number of sources including

customer suggestions, CSR surveys conducted by nonprofit

and other organizations, and ISO 26000 core issues. Based

on this information, we identify issues for action within

each theme that we, as the KHI Group, should tackle.

During the period of the Medium-term Business Plan

2010 (FY2011–2013), 85 items were established as issues

for action. These were subject to self-assessment regarding

the current status, and corresponding action plans were

formulated. They aimed to remedy deficiencies and further

improve strengths, and were followed up with a Plan-Do-

Check-Action (PDCA) cycle. (Progress with action on each of

the issues is reported by theme on pages 29–42.)

At the end of fiscal 2013, we decided to review the

issues based on developments over the previous three

fiscal years to prepare for further progress during the

period of the Medium-term Business Plan 2013 (FY2014–

2016). For details on each issue, please refer to the

theme-by-theme report.

Based on the issues for action in our Medium-term

Business Plan 2010 （FY2011–2013）, we launched a fresh

appraisal that factored in newly received customer

suggestions and the evaluation items of the overseas SRI

index (the socially responsible investment index, which

includes important investment criteria on the corporate

financial situation as well as environmental and social

activities and other factors).

Our approach is to set a relatively loose target profile,

take effective action according to separate divisional action

plans for each fiscal year, and follow up with a PDCA cycle.

To achieve a more concrete picture of what society

expects from the KHI Group, we also organize a Dialogue

with Experts. (Please see page 43 for information on the

fiscal 2013 dialogue.) Viewing them as representative of

stakeholders’ opinion, we reflect the experts’ insights and

comments in our CSR activities. This activity will be

continued and expanded in fiscal 2014 and thereafter.

Realize the Group Mission (KHI’s duty to society) at a higher level.

Draw on comprehensive Group capabilities and apply sophisticated technologies to the development of high-performance,high-quality products.

Pursue sound, transparent management, enable each business segment to operate independently,and demonstrate the combined strengths of the Group.

Pinpoint major risks that threaten the achievement of business targets and establish a system capable ofproviding the most appropriate responses.

Create a safe, pleasant working environment where employees can perform their jobs in good health andin a positive state of mind.

Respect the diversity of employees and strive to create a workplace that embraces wide-ranging values and abilities andutilizes them to the full.

Endeavor to create a workplace that provides motivation and satisfaction and one in which employees are treated fairlyand appropriately.

Coexist and cooperate with local communities and help nurture new generations that will develop future “dream” technologies.

Respect the myriad cultures of countries around the world and contribute to their vibrancy by cultivating technology andhuman resources in these countries.

Institute reliable information security measures and maintain the safety and security of information.

Provide timely, accurate corporate information and further enrich the content of disclosure.

Coexist with business partners and maintain fair partnerships while promoting collaboration in CSR activities.

Consistently cultivate the skills of employees, refine acquired talents, and raise the value of personnel assets to the highest level.

Strive to realize a low-carbon society, a recycling-oriented society, and a society that coexists with nature.

Provide products and services that are reliable and safe from the customer's perspective.

Provide products and services that meet customer needs and leave a very positive impression.

Build an organization that is open and self-regulating to underpin a corporate culture with credibility.

The KHI Group implements its medium-term business plans over a three-fiscal-year

cycle. The review of CSR activities is also integrated with the medium-term business

plan to target the action goals of Kawasaki Business Vision 2020, which states our

medium- to long-term objectives.

The target profile for the broad range of our CSR activities is set out below. The target profile for each theme is indicated on

the page dedicated to the individual theme.

Roadmap for Rollout of CSR Activities (Medium to Long term)

KHI Group CSR implementation system

http://www.khi.co.jp/english/csr/compliance/index.html

*For details, see Target Pro�le �gure on page 11.

・ issues for action

・ Promote integration of business management with CSR

・ Rollout to the global Group

・ Expand to include the supply chain

・ Enhance the implementation system

・ Expand the scope of dialogue・ Approach to CSR and review of its links to the Group Mission

・ Formulation of themes

・ Selection of issues for action (85 items)

・ Putting in place of action systems (parent company)

・ Translation into division-based action plans and implementation (parent company)

Period of the Medium-term Business Plan

2010 (FY 2011–2013)

Period of the Medium-term Business Plan

2013 (FY 2014–2016)

Kawasaki

Business Vision 2020

Action goals

Reexamine target profile and review

The KHI Group Mission—“Kawasaki, working as one for the good of the planet”—indicates that we are committed

to achieving sustainability and resolving issues in society through our business operations. At the same time,

we are taking action to further improve our activities to ensure product safety and enhance quality and

customer satisfaction.

Each internal company is formulating its own plan toachieve “value creation through business”.

Measures

We are aiming to contribute to a sustainable society through our business operationsand products

We are monitoring customer satisfaction to achieve further improvement

We are working to further improve quality and product safety so as tomake products that customers trust

Productdevelopment

Customer satisfaction

Efforts to create new markets and develop new customer value

Product liability

Clearly delineated product safety assurance system involvingsenior management

Clearly delineated product quality assurance system involvingsenior management

Clearly stated quality policy and quality assurance activity in linewith the policy

Initiatives to improve customer satisfaction reflecting customersatisfaction surveys

System for reporting customer suggestions and complaints to seniormanagement of business divisions and achieving relevant improvement

Self-Assessment of Activities

Category Action FY2011 FY2012 FY2013

Annual self-assessment (average)

Will take action going forward Some action taken Robust action taken Sufficient action taken but further improvement targeted

Topic 1 Rolling Stock CompanyInitiatives for Product Safetyines Cont

29 30Kawasaki Report 2013 Value Creation

Overview of Activities during the Medium-term Business Plan 2010 (FY2011–2013)

Rail is a public transit system

that offers excellent

punctuality and safety and is

also friendly to the global

environment.

The Rolling Stock Company

delivers rolling stock that

meets the full range of needs

to customers around the

world, playing an important

role in the provision of public

transit services.

Improvement of rolling stock safety is a responsibility

of this role. Specifically, further enhancement of safety in

the event of a crash is a priority for our customers in the

rail industry and society as a whole. Based on the scenario

of a collision with an automobile at a railroad crossing, or

a collision between two trains, the task is to control the

way each rail car body ”crushes” at the time of impact to

protect the passenger compartment and enhance customer

and driver safety.

With automobiles, the usual approach is to carry out a

crash test using an actual vehicle, but since rolling stock is

much larger in size and weight, a crash test using an

actual rail car would be a major undertaking and is

therefore impractical in terms of cost and time.

Accordingly, numerical simulation is the main method

used when verifying the crash safety of the many

different types of rail car. This makes it essential to

develop the relevant technology and ensure its accuracy.

To evaluate safety during a crash, we start with the

impact-absorbing elements at the level of the individual

parts and materials and continue through to the elements

that affect the behavior of the entire rail car as well as

the entire train, building upon component technologies

step by step to assess the safety of the entire rail car.

Numerical simulations along with verification tests that

use an actual physical unit of each component are the

drivers of improvement in crash safety verification

technology. Numerical simulations backed up by

verification tests make it possible to assess the crash

safety of rail cars. In 1999, the Rolling Stock Company

carried out a test in which an actual rail car designed for

overseas export was crashed into a wall. The simulation

and the test results showed a very high degree of

consistency. As a result, we received the Best Paper

Award in the Rail Transportation Division from the

American Society of Mechanical Engineers. The Rolling

Stock Company was the first Japanese rail car

manufacturer to tackle the issue of crash safety, and is

proud of having steadily built up the relevant

technologies through tireless efforts in R&D.

In the development of high-speed rolling stock for

Japan and overseas markets, we supplement the crash

safety technologies and the knowledge and experience of

the Rolling Stock Company through application of crash

safety technologies developed by other companies. These

are used, for instance, to design the obstacle deflector for

the front car of a train or to create car body structures

that enhance operability for the driver while providing

protection from potential dangers such as bird strikes.

Going forward, we are committed to continuing with

our dedicated efforts that will rapidly achieve the

improvement in rolling stock safety that society wishes

to see.

Rolling Stock Crash Safety

Manager, CarbodyStructure EngineeringSection, DevelopmentEngineering Department,Engineering Division,Rolling Stock Company

Atsushi Sano

Initiatives to improve product safety, product quality,

customer satisfaction and other areas of our operations

have been a focus of energies since our establishment as a

manufacturer. To visualize this process as a way to

promote further improvement, in 2011 all internal

companies carried out a product safety self-assessment

based on product quality and activity level, in which the

degree of development of the quality management system

was used as an evaluation index. In the field of customer

satisfaction, the evaluation methods used vary due to the

differing nature of the products handled by our business

segments. We therefore carried out an internal survey to

determine which structures each of our internal companies

has in place and how these operate, and shared the survey

results as part of Group-wide activities.

As a task for the future, we aim to create links across a

broader front between our business operations and action

to resolve issues in society. This action will include

identifying social issues and undertaking dialogue with

new stakeholders.

Target profile


Verification of Safety in the Event of a Crash

Crash involvingimpact-absorbingparts and materials

1

Impact on the entirerolling stock 3

Crash betweentwo trains 4

Impact on the crushablezone

2

After the crash

After the crash

Analysis

Before the crash After the crash

Rolling stock body standards

Crushable zone(showing the floor frame only)

Before the crash

Before the crash

Test

Test Analysis

Improvementsbased on test results

Improvementsbased on test results

Moving trainStationary train

・ Japanese Industrial Standard JIS E7105・ U.S. Code of Federal Regulations 49CFR238 ・ European Standard EN12663, EN15227

1Product liabilityProduct development Customer satisfaction

Categories

In our CSR Reports for FY2012 and FY2013, the reports on product safety, improvement of product quality, and improvement of

customer satisfaction were presented in order by business division. This year’s report adopts the same format.

Value CreationWe will use our integrated technological expertise to createvalues that point the way to the future.

Business Model That Reflects Customer Comments

Feedback of customer comments

Kawasaki Heavy Industries, Ltd. (KHI)

Gas Turbine Division

Kawasaki Machine Systems, Ltd. (KMS)

proposes the best solution based on

Kawasaki products by planning, installing

and operating to match the demands and

requests of the customer.

Kawasaki Machine Systems, Ltd. (KMS)

Sales/system engineering/after-sales servicing

Industrial gas turbine products

Delivery of products, services and solutions

Topic 3 Kawasaki Machine Systems, Ltd.Initiatives to Improve Customer Satisfaction Levels

Our company is the only division within KHI that

delivers goods directly to consumers.

We manufacture and deliver to world markets

a wide range of products including motorcycles,

all-terrain vehicles (ATVs), recreation utility

vehicles (RUVs), utility vehicles, Jet Ski personal

watercraft, and general-purpose gasoline engines.

Of these products, the Ninja series and Z series in

particular are loved by riders around the world

and have become a byword for Kawasaki

motorcycles. In 2013, we released new models

for 2013, the Ninja ZX-6R, Ninja 300, and Ninja

250 and the Z800 and Z250, assembling a

wide-ranging product lineup that has enjoyed

popular acclaim.

To continuously raise brand strength by

delivering attractive products and services that

inspire customer confidence and satisfaction, we

need to not only assemble a comprehensive

product lineup but also manufacture all products

to an excellent level of quality.

In the development process, comprehensive

quality checks are carried out at intermediate

stages by relevant divisions. If a set quality level

is not reached at internal design review meetings,

the product is not allowed to proceed to the next

stage. This system guarantees quality in the

models we develop.

Meanwhile, our manufacturing divisions

continue to work hard maintaining and

improving quality through continuous quality

improvement activity and carry out a stringent

quality inspection of each unit on final inspection

area at mass production lines, ensuring the

quality of the products we deliver to customers.

Quality assurance activity is not a task limited

to our company, however, but also needs to

embrace our suppliers. Of the parts used in our

products, the essential items are manufactured

in-house, but a large number of other component

parts are sourced from suppliers. Cooperation by

both parties in activities to maintain and

improve product quality is therefore another

important aspect of quality assurance activity.

In addition, after a sale is completed, we

continue to constantly gather information and

suggestions from sales bases at the market

frontline and from customers. We use the

information we obtain in product development

and quality improvement.

Today, our procurement and production

activity is rapidly globalizing, and we therefore

need to approach related quality assurance

activities from a global angle. The quality

assurance activity that has underpinned

Japanese manufacturing is evolving to a still

higher level.

Continuous and Horizontal Quality Assurance Activity

Manager, Quality Control Section, QA Admiistration Department,Quality Assurance Division, Motorcycle & Engine Company

Takeo Tsubonouchi (upper left)

Final Inspection at the Akashi Works Final Inspection at the Thailand Works(Kawasaki Motors Enterprise (Thailand) Co.,Ltd.)

Topic 2 Motorcycle & Engine CompanyInitiatives for Product Quality Improvement

Kawasaki Machine Systems, Ltd. (KMS) is a

company that carries out sales and after-service for

gas turbine emergency generator sets, mobile gas

turbine generator sets, and gas turbine pump

driven units; and servicing for gas turbine

co-generation systems. All of the above are

manufactured and/or engineered by Kawasaki

Heavy Industries, Ltd. (KHI).

Especially in the market for emergency gas

turbine generators, KMS and KHI have kept the top

share of the domestic market for the 34 years since

market studies began in 1979, delivering high

satisfaction to customers. The achievement of the

top share is due not only to advantages in product

performance and quality, but also to sales service

and attentive after-sales performance.

The KMS Service Coordination Division operates

a unique licensing system to cover its maintenance

operations. KMS has created its own licensing

system under which the company gives licenses to

both its own technical staff as well as to the staff

of its 32 service dealers following training and

education. Currently, around 400 service experts

are active in providing maintenance services.

The KMS Service Coordination Division

provides practical training and a lecture and

examination program leading to issue of the

maintenance expert certificate in four levels

from first grade to fourth grade. For each grade,

trainees undertake a fixed period of practical

exercise combined with regular classroom

lectures and examinations, allowing them to

progress to the next certificate grade. KMS

puts great effort into this program to produce

staff with more advanced work skills and

responsibilities. In this way, KMS and all service

dealers are concentrating on education and

human resources development.

At the time of the Great East Japan Earthquake

in 2011, the operating rate of KMS gas turbine

emergency generator facilities located in the

main disaster area reached a value of 99.9%,

which indicates the very high degree of reliability

of our product. We believe this high performance

was achieved thanks to the underpinning of

high-quality service provided by our well-trained

technicians and staff.

The goal of KMS is to achieve the No. 1 level

of customer satisfaction in the market by

maintaining close relationships with customers

through speedy, reliable, and honest sales and

service activities.

Human Resources Development to Improve Customer Satisfaction

Deputy Section Manager, Engineering Control Section, Administration Department, Gas Turbine Service CoordinationDivision, Kawasaki Machine Systems, Ltd.

Masayoshi Yokoo

Technical study session for techniciansof KMS and its designated service dealers

Regular gas turbine maintenance

Customers

31 32Kawasaki Report 2013 Value Creation

Categories

2ManagementWe will always act with integrity and good faith to meritsociety’s trust.To ensure that the KHI Group remains a company able to meet the expectations of society, management is

committed to operating with a high degree of transparency toward stakeholders and to promoting activities that

integrate business operations in the spirit of our Mission Statement with CSR activity.

ComplianceCorporate governance Risk management,Crisis management

Information disclosure,IR activities

Information security Business partners

Overview of Activities during the Medium-term Business Plan 2010 (FY2011-2013)


・ Introduce and increase outside directors, consider measures to strengthen governance and internal control

・ Enforce individual corporate ethics guidelines at all Group companies・ Strengthen measures to prevent irregularities at provincial and small-scale operating sites

・・ Full-scale rollout of IT audit

Targeting further improvement of corporate governance

Familiarizing all employees with the code of corporate ethics and code of conduct

・ Review information disclosed and disclosure methods, enhance IR events・ Hold regular factory tours for shareholders

Targeting further improvement of shareholder and investorcommunication

・ Promote formulation of CSR procurement guidelines at all Group companiesPromoting cooperation with business partners in CSR management

Targeting further improvement of an array of information protection measures

MeasuresTarget profile

Improve the security level to protect against confidential information leakage risk

33 34Kawasaki Report 2013 Management

For more detailed coverage, please see the full report.

http://www.khi.co.jp/english/csr/report/2013/index_full.html

among the steps we implemented to gain the opinions of

people outside our organization and thereby achieve

addition, in April 2011 we formulated and published our

Basic Policies for Material Procurement, followed by our

CSR Procurement Guidelines in April 2012, both of which

helped lay the foundations for CSR activities in the

supply chain.

Going forward, we intend to intensify activities in the

parent company and expand the scope of activities

through rollout to subsidiaries and business partners in

Japan and overseas.

During the period of the Medium-term Business Plan 2010,

appointment of independent corporate officers (from fiscal

2011), holding of dialogues with experts (from fiscal 2012)

and appointment of outside directors (fiscal 2013) were

higher levels of fairness, transparency and efficiency. In

Topic 1 Appointment of an Outside Director

At KHI, directors with an intimate knowledge of the

Company’s business operations are charged with

formulating business strategy and supervising the execution

of operations, while four corporate auditors, including two

execution of business operations.

However, with business expansion proceeding rapidly at

the global level, we made the assessment that, to maintain

environment, we needed to welcome onto the Board of

Directors a member who, drawing on a rich array of

experience and specialist knowledge in areas outside KHI’s

business domain, would be able to provide appropriate

opinions and advice from a standpoint that was objective and

independent, relative to that of the Board members responsible

for the execution of operations. We accordingly appointed

Yoshihiko Morita as an outside director.

Based on his range of activities, including experience

of business management from a global perspective at the

Japan Bank for International Cooperation and his

position as president of the Japan Institute for Overseas

Investment, we believe that Mr.

Morita is in a position to provide

useful opinions and advice relevant

to decision-making on important

matters relating to corporate

business management and also to

play a full role in the supervision of

business execution. Outside DirectorYoshihiko Morita

outside corporate auditors with no conflict of interest

relating to the Company, fulfill a management oversight

function. This system has thus far ensured efficient

sustained growth by responding flexibly to the changing

Topic 2 Holding of First Factory Tour for Shareholders

factory tour mainly for individual shareholders at

Nagoya Works 1. The participants were shareholders

selected by lot from among the many applicants,

whose numbers exceeded the places available.

At our factory, the participants eagerly viewed

operations including an autoriveter that automatically

assembles the joints of Boeing 777 fuselage panels

and an autoclave that fuses at high temperature the

Boeing 787 forward fuselage, which is made of carbon

Going forward, we will actively organize additional

events of this kind as a forum for communication with

shareholders and an opportunity for shareholders to

gain a deeper understanding of our business operations.

Watching an autoriveter at work on Boeing 777 panels

On March 12–13, 2013, we organized the first-ever

fiber composite.

The case regarding potential infringement of Act Concerning Elimination and Preventionof Involvement in Bid Rigging etc. in receipt of orders for the new multi-purpose helicopter (UH-X)

In regard to the receipt of orders for the new multi-purpose

helicopter(UH-X), questions were raised regarding potential

infringement of the Act Concerning Elimination and Prevention

of Involvement in Bid Rigging etc., and an investigation was

However, the case against KHI and its associates was not

prosecuted as a result. Nevertheless,KHI has been recognizing the

importance of compliance.

To prevent a recurrence of the situation, KHI will enhance

efforts to ensure full compliance. undertaken by the Tokyo District Public Prosecutor’s Office.

System according to which the company president listens directly toemployee comments

Appointment of outside directors

Familiarity throughout the organization with the corporateMission Statement

Operation of a system for regular and comprehensive internal audits and reporting of results

Familiarity throughout the organization with codes of conduct and a code of corporate ethics

Access to reporting and consultation contact point

Provisions to protect whistleblowers

Evaluation of effectiveness of compliance and ethics training

Full compliance with local laws and regulations in overseas business operations

Establishment of a corporate risk management system and operating framework

Evaluation of the effectiveness of corporate risk management

Formulation of a business continuity plan (BCP), and regular evaluation and revision

information

Preparation of a backup and recovery plan, periodic revision

Well-developed communication with shareholders and investors

Formulation and publication of the Basic Policies for MaterialProcurement

Requirement that business partners undertake CSR management and provision of assistance

Corporategovernance

Compliance

Risk management, Crisis management

Information security

Information disclosure, IR activities

Business partners

Category ActionFY2011 FY2012 FY2013




Publication of a policy for protection of confidential corporate

Identification of major risk at subsidiaries

The nursery of Kawasaki Motors Enterprise (Thailand) Co., Ltd.

The Skills Academy Training Center

childbirth or childcare is avoided, promoting a stable and

committed workforce. The opening of the nursery has thus

proved to be a measure with mutual advantages.

In Japan, meanwhile, from fiscal 2013, we began providing

nursery facilities at the workplace on supplementary work

days to offer childcare for limited periods.

A nursery opened at Kawasaki Motors Enterprise (Thailand)

Co., Ltd., in April 2010. The nursery is available to care for

employees’ children aged between 1 and 4 years. As of March

2013, it is providing regular care for approximately 20

children. An additional 15 or so children are registered and are

looked after when the need arises. The nursery is generally

open from 7:30 to 17:15 to coincide with regular working

hours, but if requested by more than a fixed number of

employees, it is also made available during overtime

or holidays.

The opening of the nursery means that parents can

continue working with complete peace of mind, having left

their children to be cared for nearby. From the employer’s

viewpoint as well, the loss of skilled human resources due to

Guided by a spirit that calls for “respect for humanity” and

“health first,” we strive to build a workplace atmosphere that

gives foremost priority to safety and health, creating a safe

and comfortable workplace environment that promotes both

physical and mental health. Unfortunately, however, three

serious accidents were recorded in 2012. This figure, the first

since 1999, is a cause of great concern to us. To remedy the

situation, we have formulated a safety reinforcement strategy

to be implemented going forward. The key points are

listed below.

1. Based on the view that the serious accidents arose from

unidentified risk, we will seek to prevent accidents in

advance by constantly strengthening the ability to identify

risk and carrying out risk assessment of each work

procedure at every workplace, to comprehensively reduce

latent risk in the workplace.

2. Instead of leaving safety management to veteran employees,

we will enforce a set of rules whereby managers and

supervisors are responsible for establishing a systematic

safety management system based on observation of

workplace procedures and for carrying out regular patrols and

other measures.

3. We will seek ways to enhance mock training facilities to

raise awareness and thereby encourage employees to take

the initiative in avoiding unsafe practices.

The Skills Academy Training Center opened in March 2012 as

an education and training facility for the Plant & Infrastructure

Company located within the Harima Works. The center consists

of a two-story building that houses on its first floor a welding

training workshop, a practical training workshop for machine

processing and finishing, an intensive training room, and an

accident simulation training classroom. On the second floor are

a lecture room with capacity of more than 90 students and

other facilities including a small classroom and a stack room.

This comprehensive educational facility stands amid a rich,

green setting.

We have entered an era marked by a change in age

structure, with few mid-level employees, and the retirement in

large numbers of a generation of highly skilled employees. This

means that passing on technical skills has become a difficult

challenge for our manufacturing workplaces. Through synergies

with the existing skills academy-type training system, the Skills

Academy Training Center is achieving results as a center for

transmission of existing technical skills, cultivation of new

technical skills, and accelerated training in technical skills and

instructor skills.

During the period of the Medium-term Business Plan 2010,

we continued to promote diversity and created an

information database covering our human resources in

administrative and technical positions. These were among

our initiatives to make the work environment even more

supportive of employees seeking to demonstrate their

potential. Going forward, a particularly important task is

awareness of child labor, forced labor, and other human

rights issues. In this regard, we plan to ensure that

employees both in Japan and overseas are fully informed

on these issues as part of concrete initiatives to promote

employee human rights awareness.

Topic 1 Strengthening Our Safety Management System

Topic 3 Enhanced Nursery Provision at Workplaces

Topic 2 Opening of the Skills Academy Training Center at the Harima Works



3EmployeesWe will all create a workplace where everyone wants tocontinue working.As part of our efforts to fulfill the KHI Group’s mission and operational goals, we consider our employees to be our

most important resource. We engage in initiatives to build a supportive work environment where employees feel

safe and comfortable and can show their full potential.

Safety and health Human resource development

Human rights Labor

Categories




System of fair evaluation reflected in employment conditions

Measures for promotion of women to managerial positions

Measures for employment of people with disabilities

Action to support staff combining work with childcare

Dialogue with labor unions and employees

Operation of health protection system for staff working overtime

Action in excess of legal requirement in safety, health, mentalhealthcare, etc.

Publication of employee education policies and goals taking account ofbusiness strategy

Publication of education policies and goals taking account of careers upto retirement

Operation of management system and continuous improvement

Safety andhealth

Human resourcedevelopment

Human rightsand labor


・ Implement safety awareness education ・ Strengthen mental healthcare

・ Strengthen education for global human resources and put in place relevant systems and conditions ・ Roll out human resources development programs to the entire Group

・ No child labor or forced labor Group-wide

Appropriate operation and continuous improvement of occupational safety and health management system with due consideration to employee safetyand health

Target profile

Measures to maximize the personal value of employees

・ Support activities aimed at all female employees (4U (for you) Network) ・ Recruit employees of overseas nationality, create employment promotion network for overseas nationals, etc.

Positive action for equal opportunities and diversity

・ Reinforce support for employees with childcare and care responsibilities Strengthen initiatives to create a supportive work environment for employees

Initiatives to promote employee human rights awareness

Measures



35 36Kawasaki Report 2013 Employees

CO2 Emissions andEmissions per Unit of Sales

Low-

Carbon

Society

Recycling-

Oriented

Society

Society

Coexisting

with Nature

Environmental

Management

Systems

Emissions (103 t-CO2) Emissions per unit of sales (t-CO2/billion yen)

CO2 emissions

CO2 per unit of sales

CO2 Removal Certificate forforest conservation activities

Waste Emissions andEmissions per Unit of Sales

Waste emissions

Emissions per unitof sales

Waste emissions (103 t) Emissions per unit of sales (t/billion yen)

Environmentale-learning program

① 12% reduction in waste emissions per unit of sales (total emissions/

net sales) compared to fiscal 2003 final waste processing ratio of 1% or less

② Appropriate disposal of PCB waste

① By fiscal 2013, average amount of CO2 per unit of sales (CO2 emissions

per net sales) should be reduced by 10% for fiscal 2009 through fiscal

2013 with fiscal 2008 as a base year

② Delivering energy-efficient products

① Target not met excess emissions to be redeemed through CO2 credits

(CO2 emissions are increased by the electricity emission factor)

② 504,000 t reduction in CO2 emissions through products

① 23% reduction in total emissions per unit of sales; land fill ratio of 1% or

less was achieved

② High-concentration PCB: start of commissioned disposal by Japan

Environmental Safety Corporation (JESCO)

　　　

Target

Result

① Chemical substance reduction: set reduction targets for both design and

production operations

② Progress with activity to preserve ecosystems

Energy DemandMonitoring

Processing of high-concentration PCBs

FY2011Amount emitted FY2012 FY2013

Toluene

Xylene

Ethylbenzene

Dichloromethane

401

544

204

48

Amounts of Major ChemicalSubstances Emitted and Handled

443

678

278

59

321

633

326

45


① Progressed with introduction of low-VOC paints and heavy metal-free

paints, but some targets were not met

② Continue with forest conservation activities in Hyogo, Kochi and Miyagi

prefectures

Target

Result

Target

Result

① Expand the application range of EMS

② Promote environmental communication

① Establishment of EMS was completed at major consolidated subsidiaries in

Japan and overseas

② An environmental e-learning program is being carried out training of

internal environmental auditors is being carried out

Target

Result

80

100

60

40

20

0

25%

46%

80%

100%

89%

100%100%

100%100%

KHIConsolidatedsubsidiaries in JapanConsolidatedsubsidiaries overseas

Completion rate (%)

FY2011 FY2012 FY2013

EMS Completion Rate

(Number of companies with EMS in place as apercentage of all companies in the category,

excluding newly established companies)



Extend the scope of environmental data collection to the entiregroup including overseas operations

Publish emissions reduction targets for domestic and overseasaffiliated companies

Measure the amount of energy consumed in business operationsand publish it along with reduction targets

Take action to reduce waste emissions and to promote recyclingand assess achievement



Global environment

Use and promote a system to visualize energy useSteadily reduce annual CO2 emissions and energy consumption

Reduce waste, promote reuse and recycling, and promote PCB* treatment Reduce waste emissions and promote reuse and recycling

Reduce chemical substances Steadily reduce substances of the environmental load

37 38Kawasaki Report 2013 Environment

Overview of the Fiscal 2013 Environmental Load

Measures during the Medium-Term Business Plan 2013 (FY2014–2016)


Results of Activities in Fiscal 2013

CategoryGlobal environment (sustainable development)

4EnvironmentWe will pursue “manufacturing that makes the Earth smile.”

The KHI Group has undertaken business whose foundation calls for the advancement of society and the nation through

manufacturing, and has sought to develop a global enterprise in key industries related to land, sea, and air. In doing so, we

have worked to resolve global environmental problems by seeking to realize a low-carbon society, a recycling-oriented

society, and a society coexisting with nature. We will contribute to the sustainable development of society through business

activities that are in harmony with the environment as well as through products and services that show consideration for the

global environment.

In the Seventh Environmental Management Activities Plan

(FY2011–2013), we set out key strategies and targets

related to four issues: reduction of greenhouse gas emissions,

reduction of total waste emissions, reduction of chemical

substances, and the establishment of environmental

management systems (EMS), and we promoted our

environmental activities through the plan.

For greenhouse gas emissions, we did not achieve the

reduction target, but we will use CO2 credits to cover the

surplus emissions. In the area of chemical substances, we

did not meet reduction targets for major VOCs*, but

exceeded reduction targets for other substances. In terms

of reduction of total waste emissions and establishment of

EMS, we achieved our targets in both of these areas.

The Seventh Environmental Management Activities Plan identifies four items for action: realization of a low-carbon society, realization of a recycling-

oriented society, realization of a society coexisting with nature, and establishment of EMS as the foundation for environmental management. In each

of these, we lay down basic policies and key strategies and specific goals. The results of our activities in fiscal 2013 and during the period of the

Seventh Plan are set out below. (Unless otherwise stated, data are for the KHI parent company only.)

OutputInput

Renewable energy

Greenhouse gases

SOx

NOx

Total amount (crude oil conversion)

149,000 kl

313 GWh

2,742 TJ

1.78 GWh

140,000 t

6,320,000 m3

284,000 t-CO2

8 t169 t

53,300 t

21,600 t30,300 t

1,400 t

3,920,000 m3

Fuel

Purchased electricity

Energy consumption

Amount purchasedas steel material

Materials (steel)

WaterTotal amountof wastewater

Recycled

Valuables

Intermediate waste and others

Total waste

Air

Waste

Water

KawasakiHeavy Industries

Business activities

¥983.9 billion

*VOC: Volatile organic compound. For the KHI Group, the major VOCs are toluene, xylene and ethylbenzene.

* PCB: Polychlorinated biphenyl

400

300

200

100

3

2

1

0FY2011

258

2.7

252

2.5

2.9

279

FY2012 FY20130

40

50

60

70 0.7

0.6

0.5

30

20

10

0

0.632 0.625

0.6250.606

0.542

59.762.8

53.3

0.618

( t )

15.0

1.2

Hexavalentchromium compounds

Lead

Amount handled

23.0

1.4

27.0

1.7

FY2011 FY2012 FY2013

( t )

Target of emissionsper unit of sales

Net sales

EnvironmentalManagement Activities

¥2.1 billion

¥17.5 billion

Environmental investment

Environmental costs

FY2011 FY2012 FY2013

Eighth Environmental Management Activities Plan (FY2014–2016)

The Eighth Environmental Management Activities Plan (referred to below as the Eighth Plan), covering the period from fiscal 2014 to

fiscal 2016, lays down a basic policy for coordinating environmental management with business management and promoting the KHI

Group’s environmental contribution. By setting key strategies and the Eighth Plan targets for the fulfillment of this policy to anticipate

society’s environmental needs, we will accelerate progress in energy saving and resource saving. In concrete terms, the four key

strategies we will pursue are (1) realization of a low-carbon society, (2) realization of a recycling-oriented society, (3) realization of a

society coexisting with nature, and (4) establishment of EMS. Along these lines, we will roll out activities to achieve our Environmental

Vision 2020.

Group Mission“Kawasaki, working as one for the good of the planet”

Environmental Vision 2020

① Reduce 2020 greenhouse gas emissions in line with national targets.

② Offer customers energy-efficient products and services and reduce

emissions of greenhouse gases on a planetary scale.

③ Promote energy conservation in production and logistics processes

and reduce emissions of greenhouse gases.

Realization of a low-carbon societyContribute to the prevention of global warming through our productsand manufacturing that use energy without waste

① Practice design that uses resources effectively and work to make products

lighter, more durable and more recyclable.

② Practice the 3Rs (reduce, reuse and recycle of waste) in production

activities and achieve zero emissions at all plants.

③ Completely and appropriately treat all PCB waste and

PCB-containing devices.

Realization of a recycling-oriented societyEngage in manufacturing that uses resources without waste torecycle and fully utilize limited resources

① Offer customers products and services that prevent air and water pollution,

and advance environment improvements and ecosystem protection.

② Reduce the use of chemical substances in products and production

activities.

③ Cooperate in regional forest conservation and other activities to

protect the environment of ecosystems.

Realization of a society coexistingwith natureContribute to reduction of the environmental impact and conservation of the ecosystem through manufacturing that is in harmony with the global environment

① Establish EMS at all consolidated subsidiaries in Japan and overseas to

promoteenvironmental management Group-wide.

② Comply with environmental laws and regulations and regularly

follow up on compliance status.

③ Communicate environmental data within and beyond the Group and

maintain two-way dialogue while protecting the environment.

Establishment of environmentalmanagement systemsBuild a foundation for environmental management that will achieve theEnvironmental Vision 2020

Target Profile of the KHI Group in 2020

Newly developed LNG carriers Series E6 Shinkansen (bullet train) rolling stock

Forward fuselages for theBoeing 787

KAWASAKI ECO SERVONinja 300 Spot-welding robots BX200LKawasaki Green Gas Engine Waste processing facilitiesHigh-efficiency gas turbine L30A

KHI Group Examples of Environment-Conscious Products

39 40Kawasaki Report 2013 Environment

・Establishment of EMS Establishment completed across the KHI Group as a whole

・3Rs Major reductions achieved per unit of sales Recycling rate more than 97% Zero emissions maintained・PCB treatment All treatment completed

・Major VOCs Major reductions achieved per unit of sales and in total amount・Heavy metals Major reduction in amount utilized・Forest conservation activity Forest conservation activity continued

・Energy consumption and CO2 emissions Major reductions achieved・Contribution from products Major reductions achieved in CO2 emissions during utilization

For more detailed coverage, please see the full report

and the environmental report.

http://www.khi.co.jp/english/csr/report/2013/index_full.htmlhttp://www.khi.co.jp/english/csr/report/detail/2013/index.html

Key strategy

Promote the 3Rs in the areas of waste management (reduction of waste generation,reuse, recycling)Reduce total waste emissions per unit of sales, and maintain zero emissions

Promote PCB treatmentAdvance with the treatment of high-concentration PCB waste and low-concentration PCB waste

Realization of arecycling-orientedsocietyPromotion of the 3Rs

Realization of alow-carbon societyCO2 and energy reduction

Use the energy visualization systemBy fiscal 2016, reduce annual CO2 emissions and energy consumption by at least 5%

Reduce CO2 emissions through the contribution from productsAchieve cumulative values at least equal to the initial plan values for each business segment

Eighth Plan targets

Coordination with Business Management and Promotion of Environmental Contribution

Reinforce the environmental management ability of KHI and consolidated subsidiariesin JapanSet reduction targets, and provide appropriate feedback

Reinforce the environmental management ability of overseas consolidated subsidiariesIdentify overseas laws and regulations and other requirements, and support environmental risk reduction

Reduce chemical substances Major VOCs per unit of sales for each fiscal year to be at or below the average of results achieved in the Seventh Plan

Continue with forest conservation activityCarry out forest conservation activity more than twice a year

Establishment ofenvironmentalmanagement systems

Enhancement of the KHI Groupenvironmental management system

Reduction of environmentalload/promotion of resourceconservation

Realization of asociety coexistingwith nature

The educational helicopter is an original model

developed in house for use in the handicraft

workshop. With KHI employees acting as coaches, the

children assemble the helicopter fuselage and rotor

from balsawood, while measuring the lift force of the

rotor, experimenting with technologies to stop the

fuselage from rotating, and tackling other issues in a

program that allows them to experience the elements

of learning, manufacturing and enjoyment, all at the

same time. With the help of advice from the coaches,

the children became so engrossed that they forgot to

go out and play during break.

Going forward, the KHI Group will continue to

work with local communities to explore ways of

making social contributions through its business

operations.

We wanted to use our social contribution activities to

allow large numbers of children to experience the

wonder of technology and the importance of

manufacturing. We therefore developed and are

holding a handicraft workshop program for

elementary schoolchildren based on the technology

used in the helicopters we manufacture. Since the

program (Make Your Own Helicopter!) was launched

in fiscal 2012, workshops have been held in three

areas, Osaka, Miyagi, and Iwate prefectures, and

approximately 140 children have taken part.

In fiscal 2013, with the twin aims of helping to

nurture the next generation and assisting recovery in

the earthquake-stricken Tohoku region, workshops

were held for 77 children and their parents at three

elementary schools in Miyagi and Iwate prefectures

over two days, from October 26 to 27, 2012.

Handicraft workshops given at Minamisanriku Town and Rikuzentakata City

The children became so engrossed thatthey forgot to go and play during break!

KHI Wins a Prize at the CSR Initiative Award in Education 2012 in the Teaching Material Development Category

On December 22, 2012, this program was awarded a prize

in the teaching material development category at the CSR

Initiative Award in Education 2012, organized by Leave a

Nest Co., Ltd. For details, please follow the link below to

the website.

http://www.kyouikuouen.com/award2012/Award ceremony Presentation

Handcrafted helicopter

Make Your Own Helicopter! Topic



Agree

72

63

55

72

5

13

15

5

0

1

6

0

0

0

1

0

Agreea little

Do notagreeverymuch

Do notagree

The lesson with the coach was interesting.

It was fun talking with our group’s coach.

After the lesson, I felt like trying to make

something myself.

I would like the coach to come to our school again

and teach us more.

What the children said (77 responses)

AgreeAgreea little

Do notagreeverymuch

Do notagree

20

21

2

1

0

0

0

0

The lesson with the coach was interesting.

I would like my child to take part again in a similar

handicraft workshop.

What the parents said (22 responses)

Local communities

Welfare/charity (including disaster relief)

Education

Industrial/economic development

Culture/sports

Others (including environment/safety and accident prevention)

FY2013

32.4%

28.2%

20.1%

9.5%

7.0%

2.8%Local communities

FY2012 FY2013

Welfare/charity (including disaster relief)

Education

Industrial/economic development

Culture/sports

Others (including environment/safety and accident prevention)

Total

Recurring profit for the fiscal year

Expenditure as a proportion of recurring profit

164 226

232 190

153 164

120 142

55 55

13 19

737 796

223

20

194

137

65

48

687

49,136 63,627

1.50% 1.25%

39,328

1.75%

FY2011

Expenditure on Social Contribution (Millions of yen)


Clarify vision, basic policy, key areas, and role of individual organizationsClearly define Group-wide social contribution vision, basic policy, and keyareas and implement activities

Build internal systems, strengthen activities, identify society’sexpectations of KHI and reflect these in activitiesEncourage self-planned and self–sponsored social contribution initiatives5Social Contribution

We will expand the circle of contribution that links to societyand the future.In the field of social contribution activities beyond its business operations, the KHI Group focuses on dynamic activities

designed to meet the expectations of society while drawing on strengths, in line with its Group Mission, “Kawasaki, working

as one for the good of the planet.”

Local communities and Japanese society International community

Categories



Social contribution

Formulation and publication of basic policy on socialcontribution and key areas

Publication of expenditure on social contribution activity

Encouragement of self-planning and self–sponsored socialcontribution initiatives

Identification of conditions in countries where the Company has overseas operations and corresponding activities

41 42Kawasaki Report 2013 Social Contribution


In addition to donating funds to a variety of charitable

activities and supporting disaster relief across the globe,

notably after the Great East Japan Earthquake, the KHI

Group undertakes a range of voluntary programs. These

include operation of the corporate museum, Kawasaki

Good Times World, organization of numerous events

mainly to benefit children, support for culture and sports,

involvement in local economic development projects, and

corporate forest restoration projects.

Looking ahead, we aim to define our social contribution

vision and policies more clearly and build systems to

better implement them. At the same time, we are

committed to expanding our voluntary program of

activities to support and nurture the next generation.




Notes

1. Figures include donations, sponsorship contributions, goods and material supply, the cost of operations commissioned from external organizations, and the personnel

cost of staff posted to external organizations (the portion covered by KHI), etc.

2. Figures exclude the personnel cost related to KHI employees and costs related to the use of corporate facilities. Consolidated subsidiaries are included.

Takehiko MizukamiConsultant Cre-en Inc.

Toshihiko Fujii

Visiting Professor

Saitama University

Graduate School of Economic Science

All divisions must adapt to achievethe Group’s Mission

Recognizing the difference in thinkingbetween Japan and overseas

43 44Kawasaki Report 2013 The KHI Group’s Second Dialogue with Exprerts

This year’s dialogue focused on how to reflect the issues and

demands of society in our corporate operations going forward,

and how to make them relevant in achieving our Business Vision

and formulating our medium-term business plan. Opinions were

also offered on the issues that need to be tackled in the course

of our global business expansion, which will intensify in the

years ahead.

Date

December 20, 2012

Place

KHI Tokyo Head Office

Outside ParticipantsItaru Yasui Professor Emeritus, The University of Tokyo;

former Vice-Rector, United Nations University

Toshihiko Fujii Visiting Professor, Saitama University,

Graduate School of Economic Science

Hitoshi Suzuki President, Institute for

International Socio-Economic Studies

Executive Specialist, CSR and Environmental Management

Promotion Division, NEC Corporation

Takehiko Mizukami Consultant, Cre-en Inc. (Facilitator)

KHI ParticipantsMitsutoshi Takao Senior Executive Vice President

Yoshizumi Hashimoto General Manager, CSR Division

Executive Officer

Takashi Shimakawa Deputy General Manager, Marketing Division

Senior Associate Officer

Takamasa Ogata Senior Manager, Environmental Affairs Department

Associate Officer

Kazutoshi Honkawa Senior Manager, Corporate Planning Department

Associate Officer

Yutaka Fukuda Senior Manager, CSR Department

Note: Official titles are correct as at the time of the dialogue.

On December 20, 2012, we invited specialists in a number of aspects of CSR to the KHI Tokyo Head Office for our

second Dialogue with Experts. This took the form of an exchange of opinions, including those from KHI staff, on

how to achieve Kawasaki Business Vision 2020, as well as how to promote CSR as we approach the formulation of

a new medium-term business plan to start from fiscal 2014.

The KHI Group’s Mission is all about CSR. To achieve it

would be the most wonderful thing imaginable. The

issue going forward is how individual divisions should

adapt to the Mission Statement. One problem is that

the Mission Statement speaks of “enriching lifestyles,”

which might be difficult to understand. Enrichment

includes both material and financial aspects, but I don’t

think that’s the whole story.

If we view the earth as a kind of system, we need to

look ahead constantly to see what courses are open to

us. By taking the worldwide lead, I think we can

achieve integrated CSR. To do this, an essential

precondition is to devise criteria on the amount of

risk we can take and the purposes of taking such risk,

and this needs to be set out clearly in terms of

corporate policy.

As we approach the year 2020, innovation and globaliza-

tion are indispensable. Creating innovation requires

risk-taking, but the pivotal point of our decision-making in

this area is our mission. Moreover, in terms of business

expansion in the emerging nations that are at the heart of

globalization, we need to retain a focus on developing

hand in hand with society. Putting our mission into

practice by increasing points of

contact with society, listening to

voices in society, and combining

creation of social value with

corporate value: this is where the

future lies for KHI.

Staying with our mission to create bothsocial value and corporate value

CSR as we think of it in Japan sometimes differs from

the idea of CSR that people have overseas. It is not a

question of asking who is right and who is wrong, but

we need to recognize that there are differences. In

Europe, at the root of CSR is the idea that firms should

change the way they do business to resolve social

issues. For instance, to take the example of human

rights, the idea is not to engage in businesses that help

to advance human rights, but to change the business

process to eliminate practices that infringe on

human rights.

In Japan, contributing through business activities is

recognized as CSR. In global operations, we must win

the sympathies of people from a rich diversity of

backgrounds, and CSR is a valuable tool in this regard.

I would like KHI to think about what it can do to help

these people understand that

our company is a really

good company.

Looked at from a corporate standpoint, CSR means

activity to improve management quality that involves

stakeholders and leads to sustainable development. By

engaging with stakeholders, we need to identify what

society wants and expects from us, add inputs from the

perspective of management strategy, and then choose the

priority themes of CSR.

When we seek to grow businesses that lead to

sustainability, it is important to look beyond our

immediate customers to the citizens, global environment

and society of the future. I would like to see KHI

contributing to society by interacting with citizens and

consumers and presenting solutions based on the need to

resolve social issues. Although globalization creates new

blind spots in terms of risk, my

experience with practical operations

tells me that these can be identified

quickly through engagement

with stakeholders.

Looking beyond customers to citizensand the society of the future

I think that what is required of the

KHI Group is, through its business

operations, to continuously present

accurate solutions that answer the

demands and expectations of society. The Group Mission

advocates two goals, “Enriching lifestyles” and “helping

safeguard the environment,” that are sometimes in conflict,

but I want us to work to fulfill them both. We are committed

to continuing to pursue this mission until and beyond the

year 2020.

In today’s dialogue, we have heard numerous suggestions

on how to move forward our management operations and

our business itself. In addition, because CSR is reflected in

business execution through risk management and other

aspects, I realize now that divisions other than those with

direct responsibility for CSR need to consider it from the

same perspective.

General Manager, CSR DivisionYoshizumi Hashimoto

Professor Emeritus,

The University of Tokyo:

former Vice-Rector,

United Nations University

Itaru Yasui

President, Institute for International Socio-Economic StudiesExecutive Specialist, CSR and Environmental ManagementPromotion Division, NEC Corporation

Hitoshi Suzuki

The KHI Group’s Second Dialogue with Experts

Extracts from Our Experts’ Opinions

Toward Achieving Kawasaki Business Vision 2020

Event Summary Outline of the Dialogue

Facilitator’s Comment

Taking on board expert opinion

Management's Discussion & Analysis 46Kawasaki Report 201345

Management's Discussion &Analysis

OVERVIEWIn fiscal 2013, ended March 31, 2013, the world

economy as a whole managed only a modest

rate of expansion, due to the slowdown in China’s

economic development and a general deceleration

in the growth of emerging economies that had

been driving the world economy in past years.

In terms of the outlook, despite the unstable

economic situation in Europe due to the sovereign

debt crisis, expectations of a recovery trend in the

U.S. manufacturing industry and solid underlying

infrastructural demand in emerging markets point

to a continuation of modest growth.

In Japan, recovery progressed in the wake of the

Great East Japan Earthquake, but fears over a

downturn in the world economy contributed to an

overall lack of stability. Looking ahead, hopes of

economic growth have been supported by fiscal

and monetary policies aimed at ending deflation

and spurring sustained economic growth and by the

current trend to reverse the yen’s appreciation, but

it is likely to take some time before these factors

are reflected in the real economy.

In this operating environment, the KHI Group

enjoyed an overall increase in the value of orders

received in fiscal 2013, with increases in the Ship

& Offshore Structure, Rolling Stock, and other

segments counterbalancing decreases in segments

such as Precision Machinery. Overall, net sales

were roughly on a par with those of the previous

fiscal year due to increases in the Aerospace and

other segments, despite a decline in the Precision

Machinery segment caused by the economic

slowdown in China and a drop in the Ship &

Offshore Structure segments. Overall, operating

income decreased, reflecting lower profitability in

the Precision Machinery and Plant & Infrastructure

segments, despite improvement in the Aerospace

and Motorcycle & Engine segments, where net sales

increased.

Consequently, on a consolidated basis, orders

received by the KHI Group increased ¥57.7 billion

from the previous fiscal year, to ¥1,369.5 billion.

Furthermore, net sales decreased ¥14.8 billion, to

¥1,288.8 billion, operating income fell ¥15.4 billion,

to ¥42.0 billion, and recurring profit declined ¥24.2

billion, to ¥39.3 billion. Nevertheless, due to a boost

in extraordinary income and reduced tax expenses,

net income grew ¥7.5 billion year on year, to ¥30.8

billion.

RESULTS OF OPERATIONSNet Sales

As noted, consolidated net sales, at ¥1,288.8 billion,

showed little change from the previous fiscal year.

Overseas sales totaled ¥672.6 billion. By region,

sales in the United States were ¥272.5 billion,

sales in Europe accounted for ¥97.5 billion, sales in

Asia outside Japan contributed ¥202.7 billion, and

sales in other areas added ¥99.8 billion. The ratio

of overseas sales to consolidated net sales fell 4.4

percentage points, to 52.1%, compared to 56.5% in

the previous fiscal year.

The following sections supply additional details on

the consolidated performance of each business

segment. Please note that operating income or loss

includes intersegment transactions.


Thanks to orders received for one submarine

and five other vessels including LNG carriers, the

consolidated value of orders received a major

boost, rising ¥65.8 billion from the previous fiscal

year, to ¥105.7 billion.

An increase in the construction of LNG and LPG

carriers and others was balanced by a decrease

in the construction of cape-size bulk carriers and

other vessels, resulting in a drop of ¥23.1 billion

in net sales from the previous fiscal year, to ¥90.3

billion.

Despite the drop in net sales, operating income,

supported notably by cost reductions and the

effects of yen depreciation, totaled ¥4.1 billion, on a

par with the previous fiscal year.

Rolling Stock

The consolidated value of orders received increased

¥58.3 billion year on year, to ¥124.4 billion, mainly

reflecting orders received for rolling stock, notably

for Taiwan’s high-speed rail cars and Singapore’s

subway cars.

Domestic net sales expanded on the back of

increased sales to the Japan Railways companies,

but a shrinkage in overseas net sales contributed

to an overall lack of movement in net sales, which

approximated the previous fiscal year’s total at

¥129.9 billion.

Operating income declined ¥2.9 billion from the

previous fiscal year, to ¥2.2 billion, due to the

reduced profitability of overseas projects.

Aerospace

Growth was recorded in orders received for

component parts for the Boeing 777 and 787.

However, the consolidated value of orders declined

¥43.7 billion, to ¥283.4 billion, decreasing in

comparison with the previous fiscal year, when

large-scale contracts had been received from

Japan’s Ministry of Defense.

Growth in Ministry of Defense projects such as

the C-2 transport aircraft and the increased sales

of Boeing 777 and 787 component parts helped

to boost consolidated net sales, which rose ¥32.5

billion from the previous fiscal year, to ¥239.1

billion.

Operating income posted substantial growth of ¥7.0

billion year on year, to ¥14.8 billion, due to stronger

net sales, cost reductions, and other factors.

Gas Turbine & Machinery

Led by increased orders of component parts for

commercial aircraft jet engines, the consolidated

value of orders rose ¥28.2 billion from the previous

fiscal year, to ¥255.5 billion.

Reduced sales of marine diesel engines and related

sectors were counterbalanced by growth in areas

including component parts for commercial aircraft

jet engines and gas engines. As a result, net sales

grew ¥12.3 billion year on year, to ¥207.0 billion.

Operating income dropped ¥0.7 billion to ¥7.0

billion, due mainly to allocation of non-recurring

cost for new projects.

Plant & Infrastructure

Positive factors included orders received for

cryogenic tanks for the Ichthys LNG project.

Nevertheless, reflecting reductions in domestic LNG

storage tank projects, material handling systems,

and other areas, the consolidated value of orders

fell ¥5.6 billion, to ¥113.6 billion.

Net sales were supported by the continuing high

level of LNG storage tank projects as well as by

increases in material handling systems, municipal

refuse incineration plants, and other areas.

However, due to decreases in major projects for

overseas clients, consolidated net sales shrank ¥6.9

billion year on year, to ¥115.8 billion.

Due to the fall in net sales and the narrowed profit

margin, operating income fell ¥4.3 billion year on

year, to ¥9.7 billion.

Motorcycle & Engine

Motorcycle sales to Europe decreased, but higher

sales to the United States and emerging markets,

especially Indonesia, helped to boost consolidated

net sales ¥16.6 billion year on year, to ¥251.8

billion.

Compared to the operating loss of the prior year,

growth in net sales and improved profitability

factored a net improvement of ¥5.3 billion in

operating income to ¥2.3 billion.

Precision Machinery

Consolidated orders received totaled ¥109.7 billion,

a steep ¥64.8 billion year-on-year decline mainly

due to reduced demand for hydraulic equipment

for construction machinery in emerging market

economies, most notably China.

This downshift in emerging market, particularly

Chinese, demand for hydraulic equipment for

construction machinery resulted in a large decrease

in sales also. Consolidated net sales were down

¥44.6 billion year on year, to ¥130.4 billion.

Consolidated operating income totaled ¥8.4 billion,

a steep decline of ¥18.1 billion year on year, largely

due to the decline in sales and increase in fixed

Management's Discussion & Analysis 48Kawasaki Report 201347

expenses stemming from capital investments in the

previous fiscal year.

Other

Net sales in this segment were up ¥1.0 billion, to

¥124.2 billion.

Operating income decreased ¥2.5 billion, to ¥1.2

billion.

Cost, Expenses, and Earnings

Cost of sales decreased ¥3.4 billion from the

previous fiscal year, to ¥1,085.4 billion. As a result,

gross profit declined ¥11.4 billion, to ¥203.4 billion,

while the gross profit margin edged down 0.7

percentage point, to 15.7%, from 16.4% in the

previous fiscal year.

Selling, general and administrative expenses grew

¥3.9 billion, to ¥161.3 billion, primarily because of

higher R&D expenses. Operating income fell ¥15.4

billion, to ¥42.0 billion. The fall in operating income,

which occurred despite sales growth and improved

profitability in the Aerospace and Motorcycle &

Engine segments, was due to reduced profitability

in the Precision Machinery segment caused by a

major drop in income from hydraulic equipment for

the construction machinery market in emerging

markets, especially China. The ratio of operating

income to net sales slipped 1.2 percentage points,

to 3.2%, from 4.4% in the previous fiscal year.

Other income (expenses) showed net income of

¥4.0 billion, compared with net expenses of ¥8.7

billion in the previous fiscal year. The principal

reason for this was “other expenses, net,”

which leveled off at ¥1.9 billion, compared with

¥15.3 billion in the previous fiscal year. The main

component of this change was a ¥14.5 billion

decrease in impairment losses.

Although extraordinary income increased from the

previous fiscal year, there were balancing year-on-

year decreases in operating income and recurring

profit. As a result, income before income taxes

and minority interests fell ¥2.5 billion from the

previous fiscal year, to ¥46.1 billion. After deduction

of minority interests, net income increased ¥7.5

billion from the previous fiscal year, to ¥30.8 billion.

This rise was due to a change in the tax system,

causing a partial reversal of deferred tax assets

that had been recorded during the previous fiscal

year, to be absent during the fiscal year under

review. The ratio of net income to net sales edged

up 0.6 percentage point, to 2.3%, from 1.7% in the

previous fiscal year. ROE (calculated using average

total shareholders’ equity) edged up 1.7 percentage

points, to 9.5%, from 7.8% a year ago.

Capital expenditures in fiscal 2013 came to ¥78.6

billion, up from ¥63.9 billion in the previous fiscal

year. R&D expenses were ¥41.7 billion, up from

¥39.9 billion a year ago.

FINANCIAL CONDITIONCurrent assets grew 5.1% from the previous fiscal

year, to ¥1,016.8 billion. This expansion reflected

chiefly an increase in trade receivables related to

the booking of net sales, and a rise in inventories

associated with work in progress. Fixed assets

meanwhile rose 13.8% from the previous fiscal

year, to ¥449.4 billion, due mainly to growth

in tangible fixed assets arising from capital

investment and from equity investment in Dalian

Cosco KHI Ship Engineering Co., Ltd. (DACKS).

As a result, total assets rose 7.6% from the

previous fiscal year, to ¥1,466.2 billion.

Total liabilities benefited from decreases in trade

payables, retirement and severance benefits, and

provision for losses on construction contracts.

However, chiefly because of a 19.0% year-on-year

rise in interest-bearing debt to ¥484.6 billion, the

balance of total liabilities rose 6.7%, to ¥1,116.4

billion.

Net assets grew 10.7%, to ¥349.8 billion, reflecting

items such as payment of dividends and booking of

net income.

The ratio of shareholders’ equity to total assets

expanded 0.6 percentage point, to 23.0%, from

22.4% at the end of the previous fiscal year. In

addition, the net debt-to-equity ratio increased by

10.1 percentage points, from 121.8% to 131.9%.

CASH FLOWSNet cash provided by operating activities in fiscal

2013 amounted to ¥28.1 billion, a net decrease of

¥56.6 billion from fiscal 2012. Principal inflows were

¥48.3 billion in depreciation and amortization and

a ¥10.6 billion decrease in trade receivables, while

the principal outflows consisted of a ¥41.1 billion

decrease in trade payables and ¥15.7 billion in

income tax payments.

Net cash used in investing activities amounted to

¥81.1 billion in fiscal 2013, up ¥15.2 billion from

fiscal 2012. The cash was applied primarily toward

the acquisition of property, plant and equipment.

Free cash flow, which is the net amount of cash

from operating and investing activities, showed a

net outflow of ¥53.0 billion in fiscal 2013, against a

net inflow of ¥18.7 billion in fiscal 2012.

Net cash provided by financing activities amounted

to ¥57.6 billion in fiscal 2013. This was due mainly

to an increase in borrowing.

Given these changes in cash flows, cash and cash

equivalents at the end of the term totaled ¥36.9

billion, up ¥3.7 billion from a year earlier.

MANAGEMENT OF LIQUIDITY RISK (RISK OF The COMPANY’S DEFAULT)

The Company manages liquidity risk through the

timely preparation and updating of financial plans

by the Finance Department, based on information

from each business segment. Managing liquidity

risk includes diversifying methods of financing,

adjusting financial periods of long- and short-term

debt based on the prevailing financing environment,

and securing commitment lines (maximum

financing amount of ¥54.0 billion) and issuing

commercial paper (maximum issuing amount of

¥120.0 billion).

MANAGEMENT INDICATORSeeking a level of profitability that meets the

expectations of investors, the Company has

adopted before-tax return on invested capital

(ROIC), a management indicator that measures

how efficiently the Company uses its capital. To

strengthen its financial position while striving

to maximize ROIC, the Company will emphasize

enhanced efficiency of invested capital. The

Company uses the following formula to calculate

ROIC.

Before-tax ROIC: The ratio of earnings before

interest and taxes (EBIT) to the sum of interest-

bearing debt and total shareholders’ equity.

ROIC calculated using this formula edged down 1.3

percentage points, from 7.4% in fiscal 2012 to 6.1%

in fiscal 2013.

DIVIDENDSThe Company’s basic dividend policy is to sustain

stable cash dividends in line with performance,

while giving careful consideration to retained

earnings to strengthen and expand the KHI Group’s

business base in preparation for future growth.

The Company’s basic policy regarding cash

dividends from retained earnings is to pay

dividends twice annually—an interim dividend and a

year-end dividend. The decision-making structures

with the final say on dividends are the Board of

Directors for the interim dividend and the General

Meeting of Shareholders for the year-end dividend.

Upon consideration of business performance,

the level of retained earnings and other factors,

with these policies in mind, it was decided to pay

an annual dividend of ¥5 per share (an interim

dividend of ¥0 and a year-end dividend of ¥5) for

fiscal 2013.

Retained earnings after the dividend payout will

be appropriated for investments in the Company’s

businesses, the repayment of borrowings and other

uses.

Please note that the Company’s Articles of

Incorporation provides for the distribution of

an interim dividend as stipulated in Article 454,

Paragraph 5, of Japan’s Companies Act.

50Kawasaki Report 201349

The accompanying notes to the consolidated financial statements are an integral part of these statements.

Consolidated Balance SheetsKAWASAKI HEAVY INDUSTRIES, LTD. AND CONSOLIDATED SUBSIDIARIESAt March 31, 2013 and 2012

Milions of yen Thousands of U.S dollars(Note1)

2013 2012 2013

ASSETS

Current assets:

Cash on hand and in banks (Note 19) ¥38,525 ¥34,316 $409,884

Receivables:

Trade (Note 8) 432,649 404,054 4,603,138

Other 16,464 15,680 175,167

Allowance for doubtful receivables (2,785) (3,255) (29,630)

446,328 416,479 4,748,675

Inventories:

Merchandise and finished products 61,446 53,558 653,750

Work in process 311,108 300,226 3,310,013

Raw materials and supplies 87,551 88,113 931,492

460,105 441,897 4,895,255

Deferred tax assets (Note 18) 37,648 33,007 400,553

Other current assets 34,208 41,487 363,954

Total current assets 1,016,814 967,186 10,818,321

Property, plant and equipment (Note 8):

Land 62,318 61,942 663,027

Buildings and structures 344,813 327,877 3,668,613

Machinery and equipment 576,753 537,959 6,136,325

Construction in progress 19,198 11,782 204,255

1,003,082 939,560 10,672,220

Accumulated depreciation (697,289) (664,810) (7,418,757)

Net property, plant and equipment 305,793 274,750 3,253,463

Investments and intangible and other assets:

Investments in securities (Notes 6, 7 and 8) 75,143 53,257 799,478

Long-term loans 409 432 4,351

Deferred tax assets (Note 18) 36,428 37,614 387,573

Goodwill and other intangible assets 19,446 18,786 206,894

Allowance for doubtful receivables (936) (940) (9,958)

Other (Note 8) 13,193 11,054 140,367

Total investments and intangible and other assets 143,683 120,203 1,528,705

Total assets ¥1,466,290 ¥1,362,139 $15,600,489

Milions of yen Thousands of U.S dollars(Note1)

2013 2012 2013LIABILITIES AND NET ASSETSCurrent liabilities:Short-term debt and current portion of long-term debt (Note 8) ¥229,857 ¥147,924 $2,445,547 Trade payables (Note 8) 281,063 310,775 2,990,350 Advances from customers 108,214 99,051 1,151,335 Income taxes payable (Note 18) 3,756 4,627 39,961 Accrued bonuses 20,060 20,582 213,426 Provision for product warranties 6,148 7,128 65,411 Provision for losses on construction contracts (Note 9) 18,719 30,977 199,159 Deferred tax liabilities (Note 18) 1,793 1,465 19,076 Asset retirement obligations 133 150 1,415 Other current liabilities 112,797 73,324 1,200,099 Total current liabilities 782,540 696,003 8,325,779

Long-term liabilities:Long-term debt, less current portion (Note 8) 254,796 259,243 2,710,884 Employees' retirement and severance benefits (Note 10) 62,300 75,052 662,836 Deferred tax liabilities (Note 18) 5,511 4,060 58,633 Provision for losses on legal proceedings 569 910 48,005 Provision for environmental measures 4,512 3,282 6,053 Asset retirement obligations 551 611 5,862 Other 5,630 7,056 59,903 Total long-term liabilities 333,869 350,214 3,552,176

Contingent liabilities (Note 11)

Net assets (Note 12):Sharehoders' equity:Common stock:Authorized - 3,360,000,000 sharesIssued - 1,671,892,659 shares in 2013

- 1,671,892,659 shares in 2012 104,484 104,484 1,111,650 Capital surplus 54,394 54,394 578,721 Retained earnings 198,528 176,414 2,112,224 Treasury stock - 100,116 shares in 2013

- 77,126 shares in 2012 (27) (22) (287)Total shareholders' equity 357,379 335,270 3,802,308

Accumulated other comprehensive income:Net unrealized gains on securities, net of tax 4,524 3,989 48,133 Deferred gains (losses) on hedges (5,998) 246 (63,815)Foreign currency translation adjustments (17,665) (33,451) (187,945)Total accumulated other comprehensive income (19,139) (29,216) (203,627)

Minority interests 11,641 9,868 123,853 Total net assets 349,881 315,922 3,722,534

Total liabilities and net assets ¥1,466,290 ¥1,362,139 $15,600,489


Consolidated Statements of Incomeand Comprehensive Income

KAWASAKI HEAVY INDUSTRIES, LTD. AND CONSOLIDATED SUBSIDIARIESFor the years ended March 31, 2013, 2012 and 2011

Consolidated Statements ofChanges in Net Assets


Millions of yen Thousands of U.S. dollars(Note 1)

2013 2012 2011 2013

Income before minority interests ¥33,011 ¥25,875 ¥27,758 $351,218 Other comprehensive income (loss):

Net unrealized gains (losses) on securities 541 106 (1,437) 5,755 Deferred gains (losses) on hedges (6,381) 1,281 (480) (67,890)Foreign currency translation adjustments 11,713 (2,924) (5,422) 124,620 Share of other comprehensive income of associates accounted for using equity method 5,155 231 (2,167) 54,846 Total other comprehensive income (loss) 11,028 (1,306) (9,506) 117,331

Comprehensive income 44,039 24,569 18,252 468,549

Comprehensive income attributable to:Owners of the parent company 40,940 22,228 16,506 435,578 Minority interests 3,099 2,341 1,746 32,971

Millions of yen Thousands of U.S. dollars (Note 1)

2013 2012 2011 2013

Net sales ¥1,288,881 ¥1,303,778 ¥1,226,949 $13,712,958 Cost of sales (Note 13) 1,085,469 1,088,918 1,037,079 11,548,771 Gross profit 203,412 214,860 189,870 2,164,187

Selling, general and administrative expenses (Note 14) 161,350 157,376 147,242 1,716,672 Operating income 42,062 57,484 42,628 447,515

Other income (expenses):Interest and dividend income 1,641 2,331 2,306 17,459 Equity in income of nonconsolidatedsubsidiaries and affiliates 8,530 8,567 9,205 90,754 Interest expense (4,151) (4,282) (4,677) (44,164)Other expenses, net (Note 15) (1,930) (15,394) (10,867) (20,534)

Income before income taxes and minority interests 46,152 48,706 38,595 491,030

Income taxes (Note 18)Current (10,591) (9,932) (14,340) (112,682)Deferred (2,550) (12,899) 3,503 (27,130)

Income before minority interests 33,011 25,875 27,758 351,218 Minority interests in net income of consolidated subsidiaries (2,147) (2,552) (1,793) (22,843)Net income ¥30,864 ¥23,323 ¥25,965 $328,375


Consolidated Statements of Income

Consolidated Statements of Comprehensive Income

Yen U.S. dollars(Note 1)

Per share amounts (Note 20)Net income per share - basic ¥18.4 ¥13.9 ¥15.5 $0.19 Net income per share - diluted - 13.8 15.3 - Cash dividends 5.0 5.0 3.0 0.05

Thousands Millions of yenShareholders' equity Accumulated other comprehensive income

Number of shares of common

stockCommon

stockCapitalsurplus

Retained earnings

Treasury stock

Total shareholders'

equity

Net unrealized gains (losses) on securities,

net of tax

Deferred gains

(losses) on hedges

Foreign currency

translation adjustments

Total accumulated other

comprehensive income

Minorityinterests

Totalnet

assetsBalance at March 31, 2010 1,669,629 ¥104,329 ¥54,275 ¥137,689 ¥(552) ¥295,741 ¥5,305 ¥(162) ¥(23,803) ¥(18,660) ¥5,972 ¥283,053

Net income for the year - - - 25,965 - 25,965 - - - - - 25,965 Adjustments from translation of foreign currency financial tatements - - - - - - - - (7,203) (7,203) - (7,203)

Decrease in net unrealized gains on securities, net of tax - - - - - - (1,429) - - (1,429) - (1,429)

Treasury stock purchased, net - - - - (15) (15) - - - - - (15)Cash dividends - - - (5,003) - (5,003) - - - - - (5,003)Loss on sales of treasury stock - - (0) - 1 1 - - - - - 1 Conversion of convertible bonds 1,017 11 (24) (17) 536 506 - - - - - 506 Decrease resulting from increase in equity method affiliate - - - - - - - - - - - -

Other - - - (19) - (19) - (828) - (828) 2,405 1,558 Balance at March 31, 2011 1,670,646 ¥104,340 ¥54,251 ¥158,615 ¥(30) ¥317,176 ¥3,876 ¥(990) ¥(31,006) ¥(28,120) ¥8,377 ¥297,433

Net income for the year - - - 23,323 - 23,323 - - - - - 23,323 Adjustments from translation of foreign currency financial statements - - - - - - - - (2,445) (2,445) - (2,445)

Increase in net unrealized gains on securities, net of tax - - - - - - 113 - - 113 - 113

Treasury stock purchased, net - - - - (6) (6) - - - - - (6)Cash dividends - - - (5,011) - (5,011) - - - - - (5,011)Loss on sales of treasury stock - - (0) (3) 1 (2) - - - - - (2)Conversion of convertible bonds 1,246 144 143 - 13 300 - - - - - 300 Increase (decrease) due to changes in fiscal period of consolidated subsidiaries - - - (510) - (510) - - - - - (510)

Decrease resulting from increase in equity method affiliate - - - - - - - - - - - -

Other - - - - - - - 1,236 - 1,236 1,491 2,727 Balance at March 31, 2012 1,671,892 ¥104,484 ¥54,394 ¥176,414 ¥(22) ¥335,270 ¥3,989 ¥246 ¥(33,451) ¥(29,216) ¥9,868 ¥315,922

Net income for the year - - - 30,864 - 30,864 - - - - - 30,864 Adjustments from translation of foreign currency financial statements - - - - - - - - 15,786 15,786 - 15,786

Increase in net unrealized gains on securities, net of tax - - - - - - 535 - - 535 - 535

Treasury stock purchased, net - - - - (5) (5) - - - - - (5)Cash dividends - - - (8,359) - (8,359) - - - - - (8,359)Loss on sales of treasury stock - - - (1) 0 (1) - - - - - (1)Conversion of convertible bonds - - - - - - - - - - - - Increase (decrease) due to changes in fiscal period of a consolidated subsidiary - - - (205) - (205) - - - - - (205)

Decrease resulting from increase in equity method affiliate - - - (185) - (185) (185)

Other - - - - - - - (6,244) - (6,244) 1,773 (4,471)Balance at March 31, 2013 1,671,892 ¥104,484 ¥54,394 ¥198,528 ¥(27) ¥357,379 ¥4,524 ¥(5,998) ¥(17,665) ¥(19,139) ¥11,641 ¥349,881

(Thousands of U.S. dollars) (Note 1)Balance at March 31, 2012 $1,111,650 $578,721 $1,876,944 $(234) $3,567,081 $42,440 $2,617 $(355,899) $(310,842) $104,989 $3,361,228

Net income for the year - - 328,375 - 328,375 - - - - - 328,375 Adjustments from translation of foreign currency financial statements - - - - - - - 167,954 167,954 - 167,954

Increase in net unrealized gains on securities, net of tax - - - - - 5,693 - - 5,693 - 5,693

Treasury stock purchased, net - - - (53) (53) - - - - - (53)Cash dividends - - (88,936) - (88,936) - - - - - (88,936)Loss on sales of treasury stock - - (10) 0 (10) - - - - - (10)Conversion of convertible bonds - - - - - - - - - - - Increase (decrease) due to changes in fiscal period of consolidated subsidiaries - - (2,181) - (2,181) - - - - - (2,181)

Decrease resulting from increase in equity method affiliate (1,968) (1,968) - - - - - (1,968)

Other - - - - - - (66,432) - (66,432) 18,864 (47,568)Balance at March 31, 2013 $1,111,650 $578,721 $2,112,224 $(287) $3,802,308 $48,133 $(63,815) $(187,945) $(203,627) $123,853 $3,722,534



Consolidated Statements ofCash Flows




2013 2012 2011 2013

Cash flows from operating activities:Income before income taxes and minority interests ¥46,152 ¥48,706 ¥38,595 $491,031 Adjustments to reconcile net income before income taxes and minority interests to net cash provided by (used for) operating activities:Depreciation and amortization 48,385 48,901 50,276 514,788 Loss on impairment of fixed assets 363 14,921 9,923 3,862 Increase (decrease) in employees' retirement and severance benefits (10,970) (5,257) (8,159) (116,714)Increase (decrease) in accrued bonuses (521) 4,885 1,489 (5,543)Increase (decrease) in allowance for doubtful receivables (653) 449 514 (6,947)Increase (decrease) in provision for product warranties (1,195) (750) 794 (12,714)Increase (decrease) in provision for losses on construction contracts (12,617) (2,016) 15,349 (134,237)Increase (decrease) in provision for restructuring charges - (1,077) (5,249) - Increase (decrease) in provision for losses on legal proceedings (340) (4,957) (837) (3,617)Increase (decrease) in provision for environmental measures 1,261 (545) (658) 13,416 Loss (gain) on disposal of inventories 1,711 (70) 1,336 18,204 Gain on sales of marketable securities and investments in securities (1,424) (591) (0) (15,150)Loss on valuation of securities 55 918 1,577 585Loss on sales of property, plant, and equipment 1,032 1,177 552 10,979Equity in income of nonconsolidated subsidiaries and affiliates (8,530) (8,567) (9,205) (90,754)Interest and dividend income (1,641) (2,331) (2,306) (17,459)Interest expense 4,151 4,282 4,677 44,164 Changes in assets and liabilities:Decrease (increase) in:Trade receivables 10,601 (942) 14,910 112,788 Inventories (10,711) (18,705) (17,775) (113,958)Other current assets 8,073 (2,139) 8,590 85,892

Increase (decrease) in:Trade payables (41,150) (7,332) 25,114 (437,812)Advances from customers 5,670 18,973 (15,552) 60,325 Other current liabilities 4,015 8,708 (17,156) 42,717

Other, net (2,333) 4,134 1,897 (24,823)Subtotal 39,384 100,775 98,696 419,023

Cash received for interest and dividends 8,668 6,656 6,407 92,222 Cash paid for interest (4,194) (4,455) (4,762) (44,621)Cash paid for income taxes (15,757) (18,239) (13,245) (167,646)Payment of levies - - (5,167) -

Net cash provided by (used for) operating activities ¥28,101 ¥84,737 ¥81,929 298,978


2013 2012 2011 2013

Cash flows from investing activities:Decrease (increase) in time deposits with maturities over three months (310) 1,446 (2,138) (3,298)Acquisition of property, plant and equipment (65,517) (61,126) (47,408) (697,063)Proceeds from sales of property, plant and equipment 348 535 616 3,702 Acquisition of intangible assets (4,898) (4,921) (4,886) (52,111)Proceeds from sales of intangible assets 33 16 37 351 Acquisition of investments in securities (571) (47) (350) (6,075)Proceeds from sales of investments in securities 2,899 663 12 30,843 Acquisition of investments in subsidiaries or affiliates (12,339) (1,761) - (131,279)Decrease (increase) in short-term loans (11) (11) 287 (117)Additions to long-term loans (44) (70) (40) (468)Proceeds from collection of long-term loans 101 89 102 1,074 Decrease (increase) in lease and guarantee deposits (1,152) - - (12,256)Other 301 (772) 826 3,201

Net cash provided by (used for) investing activities (81,160) (65,959) (52,942) (863,496)

Cash flows from financing activities:Increase (decrease) in short-term debt 42,129 (569) (53,670) 448,228 Proceeds from long-term debt 64,327 39,963 44,000 684,402 Repayment of long-term debt (38,837) (59,887) (4,836) (413,203)Acquisition of treasury stock (4) (8) (14) (42)Proceeds from stock issuance to minority shareholders 217 - 1,209 2,308 Cash dividends paid (8,351) (5,014) (5,000) (88,849)Cash dividends paid to minority shareholders (1,326) (1,070) (476) (14,107)Other (484) (246) (75) (5,151)

Net cash provided by (used for) financing activities 57,671 (26,831) (18,862) 613,586

Effect of exchange rate changes (886) (1,823) 367 (9,426)

Net increase (decrease) in cash and cash equivalents 3,726 (9,876) 10,492 39,642

Cash and cash equivalents at beginning of year 33,245 44,629 34,137 353,708 Decrease in cash and cash equivalents due to changes in fiscal period of consolidated subsidiaries - (1,508) - -

Cash and cash equivalents at end of year ¥36,971 ¥33,245 ¥44,629 $393,350

Supplemental information on cash flows: Cash and cash equivalents:Cash on hand and in banks in the balance sheets ¥38,525 ¥34,316 ¥47,233 $409,884 Time deposits with maturities over three months (1,554) (1,071) (2,604) (16,534)Total (Note 19) ¥36,971 ¥33,245 ¥44,629 $393,350

56Kawasaki Report 201355 Notes to the Consolidated Financial Statements

Notes to the Consolidated Financial Statements

KAWASAKI HEAVY INDUSTRIES, LTD. AND CONSOLIDATED SUBSIDIARIES

Kawasaki Heavy Industries, Ltd. (the "Company") and its consolidated domestic subsidiaries maintain their official accounting and disclosure records in Japanese yen. The accompanying consolidated financial statements have been prepared in accordance with the provisions set forth in the Japanese Financial Instruments and Exchange Law and its related accounting regulations and in conformity with accounting principles generally accepted in Japan (Japanese GAAP), which are different in certain respects as to application and disclosure requirements from International Financial Reporting Standards.

The accounts of overseas subsidiaries are based on their accounting records maintained in conformity with generally accepted accounting principles prevailing in the respective countries of domicile. The accompanying consolidated financial statements have been restructured and translated into English with some expanded descriptions and the inclusion of consolidated statements of changes in net assets from the consolidated financial statements of the Company prepared in accordance with Japanese GAAP and filed with the appropriate Local Finance Bureau of the Ministry of Finance as required by the Financial Instruments and Exchange Law. Some supplementary information included in the statutory Japanese language consolidated financial statements, but not required for fair presentation, is not presented in the accompanying consolidated financial statements.

The translations of the Japanese yen amounts into U.S. dollar amounts are included solely for the convenience of readers outside Japan, using the prevailing exchange rate at March 31, 2013, which was ¥93.99 to U.S. $1.00. The translations should not be construed as representations that the Japanese yen amounts have been, could have been or could in the future be converted into U.S. dollars at this or any other rate of exchange.

1. Basis of presenting consolidated financial statements

(a) Principles of consolidationThe accompanying consolidated financial statements include the accounts of the Company and significant companies over which the Company has power of control through majority voting rights or the existence of certain other conditions evidencing control (together, the "Companies"). The consolidated financial statements include the accounts of the Company and 95 subsidiaries (97 in the years ended March 31, 2012 and 96 in 2011). The aggregate amount of total assets, net sales, net income and retained earnings of the excluded subsidiaries would not have had a material effect on the consolidated financial statements if they had been included in the consolidation.

(b) Application of the equity method of accountingInvestments in nonconsolidated subsidiaries and affiliates over which the Company has the ability to exercise significant influence over operating and financial policies are accounted for by the equity method. For the year ended March 31, 2013, 17 affiliates (14 in 2012 and 14 in 2011) were accounted for by the equity method. For the year ended March 31, 2013, investments in 13 affiliates (14 in 2012 and 14 in 2011) were stated at cost without applying the equity method of accounting. If the equity method had been applied for these investments, the net income and retained earnings of these excluded subsidiaries and affiliates would not have had a material effect on the consolidated financial statements.

(c) Consolidated subsidiaries' fiscal year-endThe fiscal year-end of 30 consolidated subsidiaries (30 in 2012 and 33 in 2011) is December 31. These subsidiaries are consolidated as of December 31, and significant transactions for the period between December 31 and March 31, the Company’s fiscal year-end, are adjusted for on consolidation. One consolidated subsidiary has a fiscal year-end of June 30. For the purpose of preparing the consolidated financial statements, that subsidiary conducts a provisional settlement of accounts on March 31.

2. Significant accounting policies

(d) Elimination of intercompany transactions and accountsAll significant intercompany transactions and accounts and unrealized intercompany profits are eliminated on consolidation, and the portion attributable to minority interests is credited to minority interests. In the elimination of investments in subsidiaries, the assets and liabilities of the subsidiaries, including the portion attributable to minority shareholders, are evaluated using the fair value at the time the Company acquired control of the respective subsidiary.

(e) Foreign currency translationReceivables and payables denominated in foreign currencies are translated into Japanese yen at year-end rates. The balance sheets of consolidated overseas subsidiaries are translated into Japanese yen at year-end rates, except for shareholders’ equity accounts, which are translated at historical rates. The income statements of consolidated overseas subsidiaries are translated at average rates. The Company and its domestic subsidiaries report foreign currency translation adjustments in net assets.

(f) Revenue recognition<Sales of products and construction contracts>The percentage-of-completion method is applied to construction contracts if the outcome of the construction activity is deemed certain during the course of the activity. Otherwise, the completed-contract method is applied.

<Service revenues>Service revenues are recognized when the services are rendered. Services include supervisory and installation services for products such as rail cars, machinery and plants. When the prices of such services are individually determined by the contract and the collectability of the revenue is reasonably assured, the service revenue is recognized on an accrual basis. Otherwise, the service revenue is recognized on a completion basis.

Sales and cost of sales in finance leases transactions are mainly recognized when the Company receives the lease payments.

(g) Cash and cash equivalentsCash on hand, readily available deposits and short-term highly liquid and low risk investments with maturities not exceeding three months at the time of purchase are considered to be cash and cash equivalents in preparing the consolidated statements of cash flows.

(h) Allowance for doubtful receivablesAn allowance for possible losses from notes and accounts receivable, loans and other receivables is provided based on past experience and the Companies' estimates of losses on collection.

(i) Assets and liabilities arising from derivative transactionsAssets and liabilities arising from derivative transactions are stated at fair value.

(j) InventoriesInventories are stated mainly at the historical cost computed using the specific identification cost method, the moving-average cost method or the first-in, first-out method. The ending balance of inventories is measured at the lower of cost or market.

(k) Investments in securitiesThe Company and its consolidated subsidiaries classify securities as (a) debt securities intended to be held to maturity (hereafter, "held-to-maturity debt securities"), (b) equity securities issued by subsidiaries and affiliated companies and (c) all other securities (hereafter, "available-for-sale securities"). There were no trading securities at March 31, 2013, 2012 or 2011. Held-to-maturity debt securities are stated mainly at amortized cost. Equity securities issued by subsidiaries and affiliated companies which are not consolidated or accounted for using the equity method are stated at moving average cost. Available-for-sale securities with available fair market values are stated at fair market value. Unrealized gains and unrealized losses on these securities are reported, net of applicable income taxes, as a separate component of net assets. Realized gains and losses on the sale of such securities are computed using moving average cost. Other securities with no available market value are stated at moving average cost.

If the market value of held-to-maturity debt securities, equity securities issued by nonconsolidated subsidiaries or affiliated companies or available-for-sale securities declines significantly, such securities are stated at market value, and the difference between market value and the carrying amount is recognized as loss in the period of the decline. If the market value of equity securities issued by nonconsolidated subsidiaries and affiliated companies not subject to the equity method is not readily available, such securities should be written down to net asset value with a corresponding charge in the statements of income in the event net asset value declines significantly. In these cases, the market value or the net asset value will be the carrying amount of the securities at the beginning of the next year.


(l) Property, plant and equipmentProperty, plant and equipment are stated at cost. Depreciation is computed mainly on a declining balance basis over the estimated useful life of the asset. Depreciation of buildings acquired after April 1998 in Japan is computed on a straight-line basis over the building’s estimated useful life.

(m) Intangible assetsAmortization of intangible assets, including software for the Company’s own use, is computed by the straight-line method over the estimated useful life of the asset.

Goodwill is amortized on a straight-line basis over the period the Company benefits from its use. If the amount is not significant, it is expensed when incurred.

(n) Accrued bonusesAccrued bonuses for employees are provided for based on the estimated amount of payment.

(o) Provision for product warrantiesThe provision for product warranties is based on past experience and provided separately when it can be reasonably estimated.

(p) Provision for losses on construction contractsA provision for losses on construction contracts at the fiscal year-end is made when substantial losses are anticipated for the next fiscal year and beyond and such losses can be reasonably estimated.

(q) Provision for restructuring chargesThe provision for restructuring charges is based on the estimated charges for restructuring in the Motorcycle & Engine business in North America.

(r) Provision for losses on legal proceedingsThe Provision for losses on legal proceedings in which the Company is a defendant in the suit is provided based on estimates of expected compensation and other associated expenses.

(s) Provision for environmental measuresThe Company reserved an estimated amount to cover expenditures for environmental measures such as the disposal of PCB waste required under the “Law Concerning Special Measures for Promotion of Appropriate Disposal of PCB (polychlorinated biphenyl) Waste” and soil improvement.

(t) Income taxesThe asset-liability approach is used to recognize deferred tax assets and liabilities for loss carryforwards and the expected future tax consequences of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes.

(u) Employees’ retirement and severance benefitsEmployees who terminate their services with the Company or one of its consolidated domestic subsidiaries are generally entitled to lump-sum payments, the amounts of which are determined by reference to basic rates of pay at the time of termination and length of service.

The liabilities and expenses for retirement and severance benefits are determined based on amounts actuarially calculated using certain assumptions. The Company and its consolidated domestic subsidiaries provide the allowance for employees’ retirement and severance benefits based on the estimated amounts of projected benefit obligation and the fair value of plan assets (including the retirement benefit trust).

Actuarial gains and losses and prior service costs are recognized in expenses in equal amounts primarily over 10 years commencing with the following period and the current period, respectively.

Employees of the Company's overseas consolidated subsidiaries are generally covered by various pension plans accounted for in accordance with generally accepted accounting principles in the respective country of domicile.

<Additional information>Regarding the substitutional portion of the employees’ pension fund for certain subsidiaries, the Minister of Health, Labor and Welfare approved the exemption of their obligation to pay benefits related to future employee services on May 1, 2012, and the return of the portion related to past services on March 31, 2013. As a result, “Gain on transfer of benefit obligation relating to employees’ pension fund” of ¥8,624 million was recorded in “Other income (expenses)” in the consolidated statements of income for the year ended March 31, 2013.

(v) Hedge accountingThe Company and its consolidated subsidiaries employ deferred hedge accounting. If derivative financial instruments are used as hedges and meet certain hedging criteria, the Company and its consolidated subsidiaries defer recognition of gain or loss resulting from a change in the fair value of the derivative financial instrument until the related loss or gain on the hedged item is recognized.

(w) Finance leasesLeased assets under finance leases that transfer ownership of the lease assets to the lessee are amortized by the same method as that used for property, plant and equipment or intangible assets. Lease assets under finance leases that do not transfer ownership to the lessee are amortized by the straight-line-method over the lease term with zero residual value.

(x) Net income per shareThe computations of net income per share shown in the consolidated statements of income are based upon net income available to common stockholders and the weighted average number of shares outstanding during each period. Diluted net income per share is computed based on the assumption that all dilutive convertible bonds were converted at the beginning of the year. (y) Accounting for consumption taxes National and local consumption taxes are accounted for based on the net amount.

(z) Application of consolidated tax reportingEffective from the year ended March 31, 2012, the Company and its wholly owned consolidated domestic subsidiaries have elected to file a consolidated tax return.


(a) Depreciation methodIn accordance with an amendment to the Corporation Tax Act, effective from the year ended March 31, 2013, the Company and its domestic consolidated subsidiaries have changed the depreciation method applied to property, plant and equipment acquired on or after April 1, 2012 to reflect the amended Corporation Tax Act. As a result, both operating income and income before income taxes and minority interests for the year ended March 31, 2013, were ¥1,379 million more than the amounts that would have been recorded without the change.

(b) Application of Accounting Standard for Asset Retirement ObligationsEffective from the year ended March 31, 2011, the Company and its consolidated subsidiaries have adopted “Accounting Standard for Asset Retirement Obligations” (Statement No. 18, issued by ASBJ on March 31, 2008) and the “Guidance on Accounting Standard for Asset Retirement Obligations” (Guidance No. 21, issued by ASBJ on March 31, 2008). As a result of this change, operating income was ¥16 million less and income before income taxes ¥313 million less than the amounts that would have been recorded without the change.

(c) Application of Accounting Standard for Business CombinationsEffective from the year ended March 31, 2011, the Company and its consolidated subsidiaries have adopted “Accounting Standard for Business Combinations” (Statement No. 21, issued by ASBJ on December 26, 2008), “Accounting Standard for Consolidated Financial Statements” (Statement No. 22, issued by ASBJ on December 26, 2008), “Amendments to Accounting Standard for Research and Development Costs” (Statement No. 23, issued by ASBJ on December 26, 2008), “Revised Accounting Standard for Business Divestitures” (Statement No. 7, issued by ASBJ on December 26, 2008), “Revised Accounting Standard for Equity Method of Accounting for Investments” (Statement No. 16, issued by ASBJ on December 26, 2008) and “Revised Guidance on Accounting Standard for Business Combinations and Accounting Standard for Business Divestitures” (Guidance No. 10, issued by ASBJ on December 26, 2008).

3. Changes in accounting policies

On May 17, 2012, the ASBJ issued ASBJ Statement No. 26, “Accounting Standard for Retirement Benefits” and ASBJ Guidance No. 25, “Guidance on Accounting Standard for Retirement Benefits.” Under this accounting standard, actuarial gains and losses and past service costs are to be recognized in the net assets section of the consolidated balance sheets, after adjusting for tax effects, and the difference between retirement obligations and plan assets (deficit or surplus) are to be recognized as a liability or asset. With regard to the method of attributing expected benefits to periods, this accounting standard allows the application of either the straight-line basis or the benefit formula basis. This accounting standard also amends the method of determining the discount rate.

The Company will adopt this accounting standard from the year ending March 31, 2014. Since this accounting standard includes transitional provisions, no retrospective application of the standard will be applied to the consolidated financial statements of prior periods. The effect of the adoption of this accounting standard on the preparation of the consolidated financial statements is currently being evaluated by the Company.

4. Accounting standards issued but not yet adopted

The Company and its consolidated subsidiaries have adopted “Accounting Standard for Accounting Changes and Error Corrections” (Statement No. 24, issued by ASBJ on December 4, 2009) and “Guidance on Accounting Standard for Accounting Changes and Error Corrections” (Guidance No. 24, issued by ASBJ on December 4, 2009) for accounting changes and prior period error corrections made on or after April 1, 2011.

5. Additional information

(a) Book values and market values of held-to-maturity securities with available market values as of March 31, 2013 and 2012 were as follows:

Millions of yen Thousands of U.S. dollars2013

Book value Market value Unrealized losses Unrealized losses

Market values not exceeding book values:Bonds ¥133 ¥125 ¥（8） $（85）

Millions of yen2012

Book value Market value Unrealized losses

Market values exceeding book values:Bonds ¥404 ¥376 ¥（28）

(b) Acquisition costs and book values (market values) of available-for-sale securities with available market values as of March 31, 2013 and 2012 were as follows:


Book value Acquisition cost Unrealized gains (losses)

Unrealized gains (losses)

Securities with book values exceeding acquisition costs:Equity securities ¥14,082 ¥6,843 ¥7,239 $77,018

Other securities:Equity securities 659 717 (58) (617)

Total ¥14,741 ¥7,560 ¥7,181 $76,401

Millions of yen2012

Book value Acquisition cost Unrealized gains (losses)

Securities with book values exceeding acquisition costs:Equity securities ¥13,362 ¥6,164 ¥7,198

Other securities:Equity securities 2,660 3,485 (825)

Total ¥16,022 ¥9,649 ¥6,373

6. Securities

(c) Sales amounts of available-for-sale securities and related realized gains and losses for the years ended March 31, 2013, 2012 and 2011 were as follows:


Sales amounts Gains Losses Sales amounts Gains Losses

Equity securities ¥2,892 ¥1,428 ¥(3) $30,769 $15,193 $(31)

Millions of yen2012

Sales amounts Gains Losses

Equity securities ¥611 ¥593 ¥(1)

Millions of yen2011

Sales amounts Gains Losses

Equity securities ¥3 ¥ 1 ¥(0)


Investments in nonconsolidated subsidiaries and affiliates as of March 31, 2013 and 2012 were ¥52,412 million ($557,633 thousand) and ¥30,007 million, respectively.

7. Investments in nonconsolidated subsidiaries and affiliates

(d) Investments in securities subject to impairment

Impairment loss on investments in securities is recognized when there has been a significant decline in the market value.

Investments in securities for which the market value as of the end of the fiscal year has fallen to below 50% of the acquisition costs are deemed to have no recovery potential and to be fully impaired. Investments in securities for which the market value has fallen to between 30% and 50% of the acquisition costs are deemed to be partially impaired by an amount that takes into consideration the likelihood of recovery and other factors. In the years ended March 31, 2012 and 2011, the Company recognized an impairment loss on investments in securities in the amount of ¥918 million and ¥1,577 million, respectively. For the year ended March 31, 2013, the amount of impairment loss on investments was not disclosed because it was immaterial.

Short-term debt and long-term debt as of March 31, 2013 and 2012 comprised the following:

8. Short-term debt and long-term debt

Long-term debt:

Loans from banks and other financial institutions, partly secured by mortgage or other collateral, due from 2013 to 2022, bearing average interest rates of 0.77 percent and 0.90 percent as of March 31, 2013 and 2012, respectively

¥243,105 ¥223,500 $2,586,501

Notes and bonds issued by the Company:

0.81 percent notes due in 2012 - 10,000 -

1.84 percent notes due in 2013 10,000 10,000 106,394

0.72~1.22 percent notes due in 2015 20,000 20,000 212,788



0.68 percent notes due in 2019 10,000 - 106,394


1.10 percent notes due in 2022 10,000 - 106,394

Long-term lease obligations 780 861 8,298

323,885 294,361 3,445,951Less portion due within one year (69,089) (35,118) (735,067)

Total long-term debt ¥254,796 ¥259,243 $2,710,884

Millions of yen Thousands of U.S. dollars2013 2012 2013

Short-term debt:

Short-term debt, principally bank loans, bearing average interest rates of 0.74 percent and 0.81 percent as of March 31, 2013 and 2012, respectively ¥160,767 ¥112,806 $1,710,470

Current portion of long-term debt, bearing average interest rates of 0.75 percent and 1.12 percent as of March 31, 2013 and 2012, respectively 68,743 34,763 731,386

Lease obligations, current 347 355 3,691

Total short-term debt ¥229,857 ¥147,924 $2,445,547

As of March 31, 2013 and 2012, debt secured by the above pledged assets were as follows:


Trade payables ¥3 ¥59 $31

Short-term and long-term debt 30,888 29,652 328,631

Total ¥30,891 ¥29,711 $328,662

As of March 31, 2013 and 2012, the following assets were pledged as collateral for short-term debt and long-term debt:


Receivables: Trade ¥49,911 ¥44,935 $531,026

Buildings and structures 82 3,981 872

Land - 6 -

Investments in securities 14 418 148

Other 13 13 138

Total ¥50,020 ¥49,353 $532,184

In addition to the items shown above, the Company had pledged (on a long-term basis) shares of an affiliate company eliminated from the scope of consolidation in the amount of \30 million ($319 thousand).

The aggregate annual maturities of long-term debt as of March 31, 2013 were as follows:

Millions of yen Thousands of U.S. dollars

Year ending March 31

2014 ¥69,089 $735,067

2015 85,872 913,629

2016 45,327 482,253

2017 21,220 225,768

2018 and thereafter 102,377 1,089,234

Total ¥323,885 $3,445,951

Inventories for construction contracts with substantial anticipated losses and the provision for losses on construction contracts were not offset. As of March 31, 2013 and 2012, the inventories for the construction contracts for which the provision for losses on construction contracts were provided were ¥8,900 million ($94,690 thousand) and ¥10,994 million, respectively. These amounts were all included in work in process.

9. Provision for losses on construction contracts


Upon terminating employment, employees of the Company and its consolidated domestic subsidiaries are entitled, under most circumstances, to lump-sum indemnities. For an employee who voluntarily retires under normal circumstances, a minimum payment amount is calculated based on the rate of pay at the time of retirement, length of service and conditions under which the employee retires. The Company and certain consolidated subsidiaries have a defined contribution pension plan and a cash balance plan, and certain consolidated foreign subsidiaries have a retirement pension system. The cash balance plan is linked to market interest rates and treated as a defined benefit pension plan. The plan assets of the company are generally held in a separately administered trust as a proportion of a general fund.

10. Employees' retirement and severance benefits


Projected benefit obligation ¥(166,866) ¥(177,268) $(1,775,357)

Fair value of plan assets 77,992 63,743 829,790

Unrecognized prior service costs 722 (5,857) 7,681

Unrecognized actuarial gains and losses 30,347 48,553 322,874

Prepaid pension cost (4,495) (4,223) (47,824)

Liability for retirement and severance benefits ¥(62,300) ¥(75,052) $(662,836)

The liability for employees' retirement and severance benefits included in the long-term liability section of the consolidated balance sheets as of March 31, 2013 and 2012 consisted of the following:

Millions of yen Thousands of U.S. dollars2013 2012 2011 2013

Service costs - benefits earned during the year ¥8,900 ¥8,882 ¥9,338 $94,691

Interest cost on projected benefit obligation 3,566 3,675 3,821 37,940

Expected return on plan assets (1,172) (1,061) (1,046) (12,469)

Amortization of prior service costs (1,603) (2,409) (2,304) (17,055)

Amortization of actuarial gains and losses 3,852 4,715 3,849 40,983

Contribution to the defined contribution pension plans 726 712 667 7,724

Retirement and severance benefit expenses 14,269 14,514 14,325 151,814

Gain on transfer of benefit obligation relating to employees' pension fund (8,624) - - (91,754)

Total ¥5,645 ¥14,514 ¥14,325 $60,060

Retirement and severance benefit expenses in the consolidated statements of income for the years ended March 31, 2013, 2012 and 2011 comprised the following:

2013 2012 2011

Discount rate mainly 2.0% mainly 2.0% mainly 2.0%

Expected rate of return on plan assets

(For the Company and consolidated domestic subsidiaries) 3.0 to 3.5% 3.0 to 3.5% 3.0 to 3.5%

(For consolidated overseas subsidiaries) 5.04 to 7.25% 6.18 to 7.75% 6.64 to 7.75%

Amortization period for prior service costs mainly 10 years mainly 10 years mainly 10 years

Amortization period for actuarial gains and losses mainly 10 years mainly 10 years mainly 10 years

Basic assumptions and information used to calculate retirement and severance benefits were as follows:

11. Contingent liabilities


As guarantor of indebtedness of employees, nonconsolidated subsidiaries, affiliates and others ¥30,396 ¥29,496 $323,396

Contingent liabilities as of March 31, 2013 and 2012 were as follows:

Under Japanese laws and regulations, the entire amount paid for new shares is required to be designated as common stock. However, a company may, by a resolution of the Board of Directors, designate an amount not exceeding one half of the price of the new shares as additional paid-in capital, which is included in capital surplus. Under the Japanese Corporate Law (“the Law“), if a dividend distribution of surplus is made, the smaller of an amount equal to 10% of the dividend or the excess, if any, of 25% of common stock over the total of additional paid-in capital and legal earnings reserve must be set aside as additional paid-in capital or legal earnings reserve. Legal earnings reserve is included in retained earnings in the accompanying consolidated balance sheets. Under the Law, legal earnings reserve and additional paid-in capital can be used to eliminate or reduce a deficit or capitalized by a resolution of the shareholders' meeting.

Additional paid-in capital and legal earnings reserve may not be distributed as dividends. Under the Law, all additional paid-in capital and all legal earnings reserve may be transferred to other capital surplus and retained earnings, respectively, which are potentially available for dividends.

The maximum amount that the Company can distribute as dividends is calculated based on the nonconsolidated financial statements of the Company in accordance with Japanese laws and regulations.

12. Net assets

The ending balance of inventories was measured at the lower of cost or market. Gain on the valuation of inventories included in the cost of sales for the year ended March 31, 2013 and 2011 was ¥361 million ($3,840 thousand) and ¥49 million, respectively. Loss on the valuation of inventories included in the cost of sales for the year ended March 31, 2012 was ¥1,246 million.

Provision for losses on construction contracts included in the cost of sales for the years ended March 31, 2013, 2012 and 2011 was ¥5,929 million ($63,081 thousand), ¥14,980 million and ¥20,948 million, respectively.

13. Cost of sales

14. Research and development expenses


Research and development expenses ¥41,709 ¥39,940 ¥37,090 $443,759

Research and development expenses included in selling, general and administrative expenses and product costs were as follows:


15. "Other expenses, net" in "Other income (expenses)"


Foreign exchange gain (loss), net ¥(9,919) ¥206 ¥1,491 $(105,532)

Gain on transfer of benefit obligation relating to employees' pension fund 8,624 - - 91,754

Loss on environmental measures (a) (1,437) - - (15,288)

Gain on sales of marketable securities and investments in securities 1,424 591 - 15,150

Loss on impairment of fixed assets (b) (363) (14,921) (9,923) (3,862)

Loss on valuation of securities (55) (918) (1,577) (585)

Provision for doubtful receivables of affiliates (c) - - (325) -

Loss on adjustment for changes in accounting standard for asset retirement obligations - - (291) -

Other, net (204) (352) (242) (2,171)

Total ¥(1,930) ¥(15,394) ¥(10,867) $(20,534)

"Other expenses, net" in "Other income (expenses)" in the consolidated statements of income for the years ended March 31, 2013, 2012 and 2011 comprised the following:

( Reclassification )

Certain reclassifications have been made to components of “Other expenses, net” for the year ended March 31, 2012 to conform to the presentation for the year ended March 31, 2013.

(a) "Loss on environmental measures" is a provision for the disposal of PCB waste in accordance with the "Law Concerning Special Measures for Promotion of Appropriate Disposal of PCB (polychlorinated biphenyl) Waste" and soil improvement.

(b) Loss on impairment of fixed assetsOwing to a decline in the profitability or the market prices of certain asset groups, the Company and its consolidated subsidiaries reduced the book value of certain assets to the recoverable amount. Assets are grouped mainly by units of business. However, significant assets for rent or those that are idle are treated separately. Recoverable amounts were determined by the net salable value or value in use, and net salable value was estimated by appraisal or property tax assessment.

Asset groups for which the Company and its consolidated subsidiaries recognized impairment loss for the year ended March 31, 2013 were as follows:

Function or status Location Type of assets

Idle property Funabashi City, Chiba Buildings and structures, etc.

Idle property Kobe City, Hyogo Buildings and structures, land, etc.


Buildings and structures ¥247 $2,628Land, etc. 116 1,234 Total ¥363 $3,862

Impairment loss for the year ended March 31, 2013 consisted of the following:


Operating property Sakaide City, Kagawa Buildings and structures, machinery and equipment, etc.

Operating property Minato-ku and Koto-ku, Tokyo Buildings

Idle property Kakamigahara City, Gifu Buildings and structures, etc.

Idle property Akashi City, Hyogo Buildings and structures, etc.

Idle property Takeda City, Oita Land, etc.


Millions of yen

Buildings and structures ¥7,091Machinery and equipment 4,315Land 2,587Other 928

Total ¥14,921



Operating property Akashi City, Hyogo Buildings and structures, machinery and equipment, etc.

Operating property Kobe City, Hyogo Buildings and structures, machinery and equipment, etc.


Millions of yen

Buildings and structures ¥3,731Machinery and equipment 2,300Other 3,892

Total ¥9,923


(c) “Provision for doubtful receivables of affiliates” is an allowance for doubtful receivables to Tonfang Kawasaki Air–Conditioning Co., Ltd., an affiliate of the Company.

16. Consolidated statement of comprehensive income


Unrealized gains (losses) on securities

Increase (decrease) during the year ¥3,466 ¥(231) $36,875

Reclassification adjustments (2,506) 2 (26,662)

Subtotal, before tax 960 (229) 10,213 Tax (expense) or benefit (419) 335 (4,458)

Subtotal, net of tax ¥541 106 5,755

Deferred gains (losses) on hedges

Increase (decrease) during the year (20,351) 2,351 (216,522)

Reclassification adjustments 10,371 (243) 110,341

Asset acquisition cost adjustments (35) (12) (372)

Subtotal, before tax (10,015) 2,096 (106,553)Tax (expense) or benefit 3,634 (815) 38,663

Subtotal, net of tax (6,381) 1,281 (67,890)

Foreign currency translation adjustments

Increase (decrease) during the year 11,713 (2,924) 124,620

Share of other comprehensive income of associates accounted for using equity method

Increase (decrease) during the year 5,155 231 54,846

Total other comprehensive income ¥11,028 ¥(1,306) $117,331

Amounts reclassified to net income (loss) in the current period that were recognized in other comprehensive income in the current or previous periods and the tax effects for each component of other comprehensive income were as follows:


17. Dividends

(a) Dividends paid


Resolution Kind of shares Total amount ofdividends paid

Dividendsper share

Date ofrecord

Effectivedate

June 27, 2012General Meeting of

ShareholdersCommon

stock¥8,359 million

($88,934 thousand)¥5.0

($0.05)March 31,

2012June 28,

2012


Resolution Kind of shares Total amount ofdividends paid

Dividendsper share

Date ofrecord

Effectivedate


ShareholdersCommon

stock ¥5,011 million ¥3.0 March 31,2011

June 29,2011

(b) Dividend payments for which the record date is the subject fiscal year but have an effective date in the succeeding consolidated fiscal year


Resolution Kind of shares

Source of dividends

Total amount of dividends paid

Dividendsper share

Date ofrecord

Effectivedate


ShareholdersCommon

stockRetained earnings

¥8,358 million($88,924 thousand)

¥5.0($0.05)

March 31,2013

June 27,2013


Resolution Kind of shares

Source of dividends

Total amount of dividends paid

Dividendsper share

Date ofrecord

Effectivedate


ShareholdersCommon

stockRetained earnings ¥8,359 million ¥5.0 March 31,

2012June 28,

2012

18. Income taxes

Income taxes in Japan applicable to the Company and its consolidated domestic subsidiaries consist of corporation tax (national tax) and enterprise and inhabitants taxes (local taxes), which, in the aggregate, resulted in a statutory tax rate of approximately 37.8 percent and 40.5 percent for the years ended March 31, 2013 and 2012, respectively.

2013 2012

Statutory tax rate 37.8% 40.5%

Valuation allowance (4.6) 2.1

Equity in income of nonconsolidated subsidiaries and affiliates (7.0) (7.0)

Dividend from overseas consolidated subsidiaries 2.2 1.7

Changing tax rate - 12.7

Other 0.0 (3.2)

Effective tax rate 28.4% 46.8%

The significant differences between the statutory and effective tax rates for the years ended March 31, 2013 and 2012 were as follows:


Deferred tax assets:

Accrued bonuses ¥8,524 ¥8,579 $90,690

Retirement benefits 32,012 36,163 340,589

Allowance for doubtful receivables 653 900 6,947

Inventories – elimination of intercompany profits 137 654 1,457

Fixed assets – elimination of intercompany profits 436 373 4,638

Depreciation 8,431 9,874 89,701

Net operating loss carryforwards 7,819 801 83,189

Unrealized loss on marketable securities, investmentsin securities and other 3,262 3,472 34,705

Provision for losses on construction contracts 6,197 11,196 65,932

Other 29,471 25,946 313,559

Gross deferred tax assets 96,942 97,958 1,031,407

Less valuation allowance (12,281) (16,759) (130,663)

Total deferred tax assets 84,661 81,199 900,744

Deferred tax liabilities:

Deferral of gain on sale of fixed assets 4,733 4,914 50,356

Net unrealized gain on securities 2,359 1,993 25,098

Other 10,797 9,198 114,873

Total deferred tax liabilities 17,889 16,105 190,327

Net deferred tax assets ¥ 66,772 ¥65,094 $710,417

Significant components of deferred tax assets and liabilities as of March 31, 2013 and 2012 were as follows:

19. Cash and cash equivalents


Cash on hand and in banks: ¥38,525 ¥34,316 ¥47,233 $409,884

Time deposits with maturities over three months: (1,554) (1,071) (2,604) (16,534)

Total ¥36,971 ¥33,245 ¥44,629 $393,350

Cash and cash equivalents reconciled to the accounts reported in the consolidated balance sheets in the years ended March 31, 2013, 2012 and 2011 were as follows:

20. Net income per share


Basic net income per share:

Net income ¥30,864 ¥23,323 ¥25,965 $328,375

Net income allocated to common stock 30,864 23,323 25,965 328,375

(Number of shares in millions)

Weighted average number of shares of common stock 1,671 1,671 1,669

Per share amounts for the years ended March 31, 2013, 2012 and 2011 are set forth in the table below. Diluted net income per share for the year ended March 31, 2013 was not disclosed since there were no residual securities.



Diluted net income per share

Net income adjustment ¥- ¥22 ¥44 $-

(Interest expenses, etc.) ( - ) (22) (44) ( - )

(Number of shares in millions)

Increase in shares of common stocks - 13 28

(Convertible bonds) ( - ) (5) (11)

(Zero coupon convertible bonds) ( - ) (8) (17)

21. Derivative transactions

(a) Outstanding positions and recognized gains and losses at March 31, 2013 were as follows:


Contract amount Contract amount over 1 year Fair value Gain (loss) Gain (loss)

Currency related contracts:

Foreign exchange contracts:

To sell ¥148,250 ¥- ¥(22,437) (22,437) $(238,716)

To purchase 408 - 8 8 85

Option contracts:

To sell - - - - -

To purchase - - - - -

Total ¥148,658 ¥- ¥(22,429) (22,429) $(238,631)

Fair value is based on prices provided by financial institutions.

(Derivative transactions to which the Company did not apply hedge accounting)

Millions of yen

Subject of hedge Contract amount Contract amount over 1 year Fair value

Deferral hedge accounting:

Foreign exchange contracts

To sell Trade receivables ¥77,504 ¥15,694 ¥(9,783)

To purchase Trade payables 5,272 1,544 834

Option contracts

To sell Trade receivables 7,224 - (259)

To purchase Trade payables 6,800 - (79)

Alternative method (*)



To purchase Trade Payables 22 - 3

Option contracts


To purchase Trade payables 1,660 - (9)Total ¥103,968 ¥17,238 ¥(9,372)



(*) For certain trade accounts receivable and payable denominated in foreign currencies for which foreign exchange forward contracts are used to hedge the risk of foreign currency fluctuation, the fair value of the derivative financial instrument is included in the fair value of "Trade receivables" and "Trade payables" as hedge items.





To sell Trade receivables $824,600 $166,975 $(104,086)

To purchase Trade payables 56,091 16,427 8,873

Option contracts

To sell Trade receivables 76,859 - (2,755)


Alternative method



To purchase Trade Payables 234 - 31

Option contracts


To purchase Trade payables 17,661 - (95)Total $1,106,160 $183,402 $(99,712)

Millions of yen


Interest related contracts:

Interest swap Deferral hedge accounting

Floating-rate receipt/fixed-rate payment Short-term debt ¥15,000 ¥- ¥(81)

Special treatment (*)

Floating-rate receipt/fixed-rate payment Long-term debt 12,000 12,000 -Interest rate and currency swaps treated as single item(special treatment, hedge accounting treatment as an alternative method)

Long-term debt 6,993 6,993 -

¥33,993 ¥18,993 ¥(81)


(*) As interest rate swaps subject to special treatment for interest rate swaps are accounted for as a single item with the long-term debt, which comprises the hedged items, the fair value is included in that of the long-term debt.





Floating-rate receipt/fixed-rate payment Short-term debt $159,592 $- $(861)

Special treatment

Floating-rate receipt/fixed-rate payment Long-term debt 127,673 127,673 - Interest rate and currency swaps treated as single item(special treatment, hedge accounting treatment as an alternative method)


$361,666 $202,074 $(861)


(b) Outstanding positions and recognized gains and losses at March 31, 2012 were as follows:

Millions of yen

Contract amount Contract amount over 1 year Fair value Gain (loss)

Currency related contracts:

Foreign exchange contracts:

To sell ¥135,398 ¥- ¥(3,023) ¥(3,022)

To purchase 441 - (1) (1)

Option contracts:

To sell 76,480 - (2,209) (1,212)

To purchase 44,720 - (87) (848)

Total ¥257,039 ¥- ¥(5,320) ¥(5,083)



Millions of yen




To sell Trade receivables ¥88,798 ¥33,629 ¥(334)

To purchase Trade payables 45,608 1,624 1,027

Option contracts

To sell Trade receivables - - -

To purchase Trade payables - - -

Alternative method (*)


To sell Trade receivables 1,388 - 19


Total ¥137,182 ¥35,253 ¥693



(*) For certain trade accounts receivable and payable denominated in foreign currencies for which foreign exchange forward contracts are used to hedge the risk of foreign currency fluctuation, the fair value of the derivative financial instrument is included in the fair value of "Trade receivables" and "Trade payables" as hedge items.

Millions of yen




Floating-rate receipt/fixed-rate payment Short-term debt ¥20,000 ¥15,000 ¥(259)

Special treatment (*)

Floating-rate receipt/fixed-rate payment Long-term debt 15,000 12,000 -Interest rate and currency swaps treated as single item(special treatment, hedge accounting treatment as an alternative method)


¥37,688 ¥29,688 ¥(259)


(*) As interest rate swaps subject to special treatment for interest rate swaps are accounted for as a single item with the long-term debt, which comprises the hedged items, the fair value is included in that of the long-term debt.

Information related to financial instruments as of March 31, 2013 and 2012 was as follows.

(1) Matters related to the status of financial instruments

(a) Policies on the use of financial instrumentsThe Company meets its long-term operating capital and capital expenditure requirements through bank loans and the issuance of bonds and meets its short-term operating capital requirements through bank loans and the issuance of short-term bonds (electronic commercial paper). Temporary surplus funds are managed in the form of financial assets that have a high level of safety. The Company utilizes derivative financial instruments to hedge the risks described below and does not engage in speculative transactions as a matter of policy.

(b) Details of financial instruments and risks associated with those instrumentsTrade receivables are exposed to the credit risk of customers. The Company operates internationally and has significant exposure to the risk of fluctuation in foreign exchange rates. However, this risk is hedged using forward exchange contracts, etc., against the net position of foreign currency exposure. Investments in securities mainly comprise equity securities of companies with which the Company conducts business and are held to maintain relationships with these business partners. With such securities, listed stocks are exposed to market fluctuation risk.

Almost all trade payables are due within one year. A portion of trade payables are denominated in foreign currency—specifically those related to payment for imported materials, etc.—and are exposed to the risk of foreign currency fluctuation. However, this risk is mitigated principally by the position of trade payables denominated in foreign currency being less than the position of receivables in the same currency. Loans payable, bonds payable and lease obligations under finance leases are mainly used to raise operating capital and carry out capital expenditure and are due in a maximum of nine years from March 31, 2013 (ten years from March 31, 2012). A portion of these instruments is exposed to the risk of interest rate fluctuation. However, such risk is hedged using derivatives (interest swaps and currency swaps) as necessary.

In sum, derivatives comprise forward exchange and currency option contracts used to hedge foreign currency fluctuation risk on receivables and payables in foreign currencies and interest swap contracts to hedge interest rate fluctuation risk on debt. With regard to hedge accounting, see Note 2, “Significant accounting policies- (v) Hedge accounting.”

(c) Risk management system for financial instruments

(i) Management of credit risk, including customer default riskThe Company’s sales management functions and those of its consolidated subsidiaries regularly evaluate the financial circumstances of customers and monitor the due dates and balances by customer to identify and limit doubtful accounts.

With regard to derivative transactions, the Company enters into contracts with highly rated financial institutions to reduce counterparty risk. The amount presented in the balance sheet is the maximum credit risk at the fiscal year end of the financial instruments that are exposed to credit risk.

(ii) Management of market risk (related to foreign currency exchange rates, interest rates, etc.)The Company and certain of its consolidated subsidiaries hedge foreign currency fluctuation risk on receivables and payables in foreign currencies using forward exchange contracts, which are categorized by the type of currency and the monthly due date. In principle, the net position of receivables less payables in foreign currency is hedged with forward exchange contracts. The Company and certain of its consolidated subsidiaries hedge interest rate risk on debt using interest swap contracts.

With regard to investments in securities, the Company reviews its holding policies through periodic analysis of market prices and the financial condition of the issuers, taking into consideration relationships with business partners.

With regard to derivatives, in accordance with rules for the provision of transaction authorization, the Company’s finance functions and those of its consolidated subsidiaries manage transactions in accordance with an established set of fundamental policies, such as those covering limitations on transaction amounts, under the authority of the director in charge of finance. Transactions are reported to the director in charge of finance on a monthly basis. Consolidated subsidiaries manage derivatives in accordance with the same rules as those of the Company.

22. Financial Instruments


(iii) Management of liquidity risk (risk of the Company being unable to meet its payment obligations by their due dates)The Company manages liquidity risk through its finance department, maintaining and updating its finance plans based on reports from each business division. Liquidity risk is managed through the diversification of financing methods, taking into consideration the financing environment and balancing long- and short-term financing requirements, securing commitment lines, etc.

(d) Supplemental information on the fair value of financial instrumentsThe fair value of financial instruments includes values based on market price and reasonably estimated values when market price is not available. However, as variables are inherent in these value calculations, the resulting values may differ if different assumptions are used. With regard to the contract amounts, etc. of the derivatives described below in “(2) Fair values of financial instruments,” these amounts do not represent the market risk associated with the corresponding derivative transactions themselves.

(2) Fair values of financial instrumentsThe book values, the fair values and the differences between these values as of March 31, 2013 were as follows (Financial instruments for which the fair value was extremely difficult to determine were not included, as described in remark (ii)):


Book value Fair value Unrealized gains (losses)

Unrealized gains (losses)

Cash on hand and in banks ¥38,525 ¥38,525 ¥- $-Trade receivables 432,649 432,619 (30) (319)Investments in securities 14,876 14,868 (8) (85)

Total assets 486,050 486,012 (38) (404)Trade payables 281,063 281,063 - -

Short-term debt and current portion of long-term debt (excluding lease obligations) 229,510 229,510 - -Long-term debt, less current portion (excluding lease obligations) 254,362 255,269 907 9,649

Total liabilities 764,935 765,842 907 9,649

Derivative transactions (*) ¥(31,883) ¥(31,883) ¥- $-

(*) Derivative financial instruments are presented as net amounts. Negative amounts stated with parentheses ( ) indicate that the net amount is a liability.

The book values, fair values and the differences between these values as of March 31, 2012, were as follows (Financial instruments for which the fair value was extremely difficult to determine were not included, as described in remark (ii)):

Millions of yen

Book value Fair value Unrealized gains (losses)

Cash on hand and in banks ¥34,316 ¥34,316 ¥-Trade receivables 404,054 403,847 (207)Investments in securities 16,427 16,399 (28)

Total assets 454,797 454,562 (235)

Trade payables 310,775 310,775 -

Short-term debt and current portion of long-term debt (excluding lease obligations) 147,568 147,568 -Long-term debt, less current portion (excluding lease obligations) 258,738 260,672 1,934

Total liabilities 717,081 719,015 1,934

Derivative transactions (*) ¥(4,886) ¥(4,886) ¥-

(*) Derivative financial instruments are presented as net amounts. Negative amounts stated with parentheses ( ) indicates that the net amount is a liability.

(i) Methods used to calculate the fair value of financial instruments and details of securities and derivative instruments

<Assets>-Cash on hand and in banksThe fair value of cash on hand and in banks is stated at the relevant book value since the settlement periods are short and the fair values are substantially the same as the book values.

-ReceivablesThe fair value of receivables is stated at present value computed by applying a discount rate reflecting the settlement period and the credit risk.

-Investments in securitiesEquity securities are stated at the fair value, and bonds are stated at market price or the asking price of financial institutions. See Note 2(k), “Investments in securities,” for the detailed information by classification.

<Liabilities>-Trade payables, short-term debt and current portion of long-term debtSince the settlement periods of these items are short and their fair values are substantially the same as their book values, the relevant book values are used.

-Long-term debt, less current portionThe fair value of bonds payable is calculated based on trading reference data. The fair value of long-term debt is calculated by applying a discount rate to the total of principal and interest. That discount rate is based on the interest rates of similar new loans.

<Derivatives>See Note 21, “Derivative Transactions.”

(ii) Financial instruments for which the fair value is extremely difficult to determine

Since no market values are available for these items and since it is extremely difficult to determine their fair values, the items listed in the table above are not included in investments in securities.

(iii) Planned redemption amounts after the balance sheet date for monetary receivables and investments in securities with maturity dates as of March 31, 2013 and 2012 were as follows:


Unlisted equity securities and investments in partnerships ¥7,855 ¥7,122 $83,572 Stocks of nonconsolidated subsidiaries and affiliates 7,620 6,917 81,072 Investments in affiliates 44,792 23,090 476,561 Total ¥60,267 ¥37,129 $641,205

Millions of yen2013

Within 1 year Over 1 year butwithin 5 years

Over 5 years butwithin 10 years Over 10 years

Cash on hand and in banks ¥38,525 ¥- ¥- ¥-Trade receivables 426,027 6,622 - -Investments in securities

-Bonds - 133 - -Total ¥464,552 ¥6,755 ¥- ¥-

Thousands of U.S. dollars2013



Cash on hand and in banks ¥409,884 $- $- $-Trade receivables 4,532,684 70,454 - -Investments in securities

-Bonds - 1,415 - -Total ¥4,942,568 $71,869 $- $-


(iv) Planned repayment amounts after the balance sheet date for bonds payable, convertible bonds and long-term debt

See Note 8, “Short-Term debt and Long-term debt.”

Millions of yen2012



Cash on hand and in banks ¥34,316 ¥- ¥- ¥-Trade receivables 368,419 35,635 - -Investments in securities

-Bonds 300 104 - -

Total ¥403,035 ¥35,739 ¥- ¥-

23. Finance leases

As discussed in Note 2(w), finance leases commenced prior to April 1, 2008 which do not transfer ownership of the leased assets to the lessee are accounted for as operating leases. Information regarding such leases, as required to be disclosed in Japan, is as follows:

(a) LesseeThe original costs of leased assets under non-capitalized finance leases and the related accumulated depreciation and amortization, assuming it was calculated by the straight-line method over the term of the respective lease, as of March 31, 2013 and 2012 were as follows:

The present values of future minimum lease payments under non-capitalized finance leases as of March 31, 2013 and 2012 were as follows:

Lease payments, "as if capitalized" depreciation and amortization and interest expense for non-capitalized finance leases for the years ended March 31, 2013, 2012 and 2011 were as follows:


Current portion ¥2,264 ¥3,150 $24,087Noncurrent portion 6,111 9,081 65,018Total ¥8,375 ¥12,231 $89,105


Lease payments ¥3,702 ¥4,911 ¥5,038 $39,387Depreciation and amortization 3,402 4,531 4,669 36,195Interest ¥270 ¥388 ¥486 $2,872


Property, plant and equipment ¥24,064 ¥31,691 $256,027Accumulated depreciation (15,528) (19,888) (165,209)

8,536 11,803 90,818

Intangible assets 82 284 872Accumulated amortization (77) (238) (819)

¥5 ¥46 $53

(b) LessorThe original costs of leased assets under finance leases and the related accumulated depreciation and amortization as of March 31, 2013 and 2012 were as follows:

The present values of future minimum lease payments to be received under finance leases as of March 31, 2013 and 2012 were as follows:

Lease payments received, depreciation and amortization and interest on finance leases for the years ended March 31, 2013, 2012 and 2011 were as follows:


Current portion ¥122 ¥195 $1,298Noncurrent portion 54 181 574Total ¥176 ¥376 $1,872


Lease payments received ¥193 ¥241 ¥282 $2,053Depreciation and amortization 165 213 257 1,755Interest ¥13 ¥24 ¥35 $138


Property, plant and equipment ¥956 ¥1,429 $10,171Accumulated depreciation (803) (1,107) (8,544)

153 322 1,627

Intangible assets 12 45 127Accumulated amortization (12) (45) (127)

¥- ¥0 $-

24. Operating leases

There were no operating lease transactions for the years ended March 31, 2013 and 2012.

25. Segment information

(a) Overview of reportable segmentsThe Company’s reportable segments are components of the Company for which separate financial information is available. These segments are subject to periodic review by the Company’s Board of Directors to determine the allocation of resources and assess performance. The Company’s operations are divided into internal companies based on product categories. Certain authority is delegated to each of the internal companies based on whether they conduct businesses in Japan or overseas. The Company’s operations are therefore segmented based on each internal company’s product categories. The Company’s eight reportable segments are the Ship & Offshore Structure segment, the Rolling Stock segment, the Aerospace segment, the Gas Turbine & Machinery segment, the Plant & Infrastructure segment, the Motorcycle & Engine segment, the Precision Machinery segment and the Other segment.

The main businesses in the Company’s reportable segments are set forth in the table below.


Business segment Major products

Ship & Offshore Structure Construction and sale of ships and other vessels, etc.

Rolling Stock Production and sale of rolling stock, snow plows, etc.

Aerospace Production and sale of aircraft, etc.

Gas Turbine & Machinery Production and sale of jet engines, general-purpose gas turbine generators, prime movers, etc.

Plant & Infrastructure Production and sale of industrial equipment, boilers, environmental equipment, steel structures, crushers, etc.

Motorcycle & Engine Production and sale of motorcycles, personal watercraft, all-terrain vehicles (ATV), utility vehicles, general-purpose gasoline engines, etc.

Precision Machinery Production and sale of industrial hydraulic products, industrial robots, etc.

Other Production and sale of construction machinery, commercial activities, sales/order agency and intermediary activities, administration of welfare facilities, etc.

(b) Calculation methods for sales, income (loss), assets, liabilities and other items by reportable segmentAccounting methods applied for the calculation of sales, income (loss), assets, liabilities and other items by business segment largely correspond to information presented under Note 2, “Significant accounting policies.” Segment income is based on operating income. Intersegment sales and transfers are based on market prices.

(c) Sales, income (loss), assets, liabilities and other items by reportable segment

Year ended March 31, 2013Millions of yen

Sales

Segment income (loss)

Segmentassets

Other items

External sales

Intersegment sales and transfers Total

Depreciation/amortization

Impairment loss

Investment in equity-method affiliates

Increase in property, plant and equipment and intangibles

Ship & Offshore Structure ¥90,343 ¥1,999 ¥92,342 ¥4,162 ¥112,612 ¥1,364 ¥- ¥35,434 ¥1,781 Rolling Stock 129,973 2,888 132,861 2,215 163,528 3,536 - 99 2,808 Aerospace 239,172 2,289 241,461 14,827 311,659 10,769 - - 17,171 Gas Turbine & Machinery 207,008 19,404 226,412 7,033 251,808 6,100 - 1,086 9,324 Plant & Infrastructure 115,813 15,115 130,928 9,772 115,470 1,861 - 11,768 4,376 Motorcycle & Engine 251,858 757 252,615 2,397 271,548 10,480 - 994 14,866 Precision Machinery 130,455 14,027 144,482 8,452 114,699 7,713 - - 12,320 Other 124,259 32,873 157,132 1,273 144,211 2,427 363 2,521 2,149 Total ¥1,288,881 ¥89,352 ¥1,378,233 ¥50,131 ¥1,485,535 ¥44,250 ¥363 ¥51,902 ¥64,795 Adjustments - (89,352) (89,352) (8,069) (19,245) 4,135 - - 13,829 Consolidated total ¥1,288,881 ¥- ¥1,288,881 ¥42,062 ¥1,466,290 ¥48,385 ¥363 ¥51,902 ¥78,624


Sales


Segmentassets

Other items

External sales



Impairment loss



Ship & Offshore Structure ¥113,532 ¥1,636 ¥115,168 ¥3,964 ¥102,102 ¥3,819 ¥13,554 ¥15,278 ¥2,297Rolling Stock 132,684 2,105 134,789 5,154 157,487 3,693 - 92 2,266Aerospace 206,580 1,846 208,426 7,815 295,668 9,633 33 - 10,208Gas Turbine & Machinery 194,655 20,438 215,093 7,775 223,649 6,680 - 576 7,310Plant & Infrastructure 122,800 13,150 135,950 14,118 109,395 1,703 64 10,171 3,277Motorcycle & Engine 235,243 1,033 236,276 (2,959) 222,515 11,151 - 967 11,770Precision Machinery 175,077 14,245 189,322 26,622 110,578 6,647 - - 16,221Other 123,207 35,281 158,488 3,838 183,396 2,539 1,270 2,412 3,384Total ¥1,303,778 ¥89,734 ¥1,393,512 ¥66,327 ¥1,404,790 ¥45,865 ¥14,921 ¥29,496 ¥56,733Adjustments - (89,734) (89,734) (8,843) (42,651) 3,036 - - 7,186Consolidated total ¥1,303,778 ¥- ¥1,303,778 ¥57,484 ¥1,362,139 ¥48,901 ¥14,921 ¥29,496 ¥63,919

Year ended March 31, 2013Thousands of U.S. dollars

Sales


Segmentassets

Other items

External sales



Impairment loss



Ship & Offshore Structure $961,197 $21,268 $982,465 $44,280 $1,198,127 $14,512 $- $376,998 $18,949 Rolling Stock 1,382,839 30,727 1,413,566 23,567 1,739,845 37,621 - 1,053 29,875 Aerospace 2,544,654 24,354 2,569,008 157,752 3,315,874 114,576 - - 182,689 Gas Turbine & Machinery 2,202,447 206,447 2,408,894 74,827 2,679,093 64,900 - 11,554 99,202 Plant & Infrastructure 1,232,184 160,815 1,392,999 103,968 1,228,535 19,800 - 125,204 46,558 Motorcycle & Engine 2,679,625 8,054 2,687,679 25,502 2,889,116 111,501 - 10,576 158,166 Precision Machinery 1,387,967 149,239 1,537,206 89,925 1,220,332 82,062 - - 131,078 Other 1,322,045 349,750 1,671,795 13,544 1,534,323 25,822 3,862 26,822 22,864 Total $13,712,958 $950,654 $14,663,612 $533,365 $15,805,245 $470,794 $3,862 $552,207 $689,381 Adjustments - (950,654) (950,654) (85,850) (204,756) 43,994 - - 147,133 Consolidated total $13,712,958 $- $13,712,958 $447,515 $15,600,489 $514,788 $3,862 $552,207 $836,514


Sales


Segmentassets

Other items

External sales



Impairment loss



Ship & Offshore Structure ¥118,416 ¥1,895 ¥120,311 ¥(1,013) ¥115,800 ¥4,264 ¥- ¥13,125 ¥3,183Rolling Stock 131,104 2,079 133,183 8,173 151,212 3,634 - 123 2,416Aerospace 196,876 1,811 198,687 3,030 288,495 9,402 - - 7,121Gas Turbine & Machinery 202,692 20,783 223,475 9,545 211,369 6,550 67 61 5,659Plant & Infrastructure 89,012 12,017 101,029 8,281 95,115 1,554 141 8,603 2,033Motorcycle & Engine 234,479 1,211 235,690 (4,961) 216,559 15,294 9,520 946 11,340Precision Machinery 140,328 13,277 153,605 22,318 99,612 4,872 - - 9,822Other 114,042 34,340 148,382 2,577 159,618 2,477 195 2,308 8,017Total ¥1,226,949 ¥87,413 ¥1,314,362 ¥47,950 ¥1,337,780 ¥48,047 ¥9,923 ¥25,166 ¥49,591Adjustments - (87,413) (87,413) (5,322) 16,498 2,229 - - 5,743Consolidated total ¥1,226,949 ¥- ¥1,226,949 ¥42,628 ¥1,354,278 ¥50,276 ¥9,923 ¥25,166 ¥55,334

(d) Reconciliation and the main components of differences between the total for reportable segments and amounts on the consolidated financial statement for the years ended March 31, 2013, 2012 and 2011


Net salesTotal for reportable segments ¥1,378,233 ¥1,393,512 ¥1,314,362 $14,663,612Intersegment transactions (89,352) (89,734) (87,413) (950,654)

Net sales reported on the consolidated financial statements ¥1,288,881 ¥1,303,778 ¥1,226,949 $13,712,958


IncomeTotal for reportable segments ¥50,131 ¥66,327 ¥47,950 $533,365Intersegment transactions 564 (131) (3) 6,000Corporate expenses (*) (8,633) (8,712) (5,319) (91,850)

Operating income (loss) on the consolidated financial statements ¥42,062 ¥57,484 ¥42,628 $447,515

(*) Corporate expenses mainly comprise general and administrative expenses not attributed to reportable segments.



IncomeTotal for reportable segments ¥50,131 ¥66,327 ¥47,950 $533,365Intersegment transactions 564 (131) (3) 6,000Corporate expenses (*) (8,633) (8,712) (5,319) (91,850)

Operating income (loss) on the consolidated financial statements ¥42,062 ¥57,484 ¥42,628 $447,515

(*) Corporate expenses mainly comprise general and administrative expenses not attributed to reportable segments.


AssetsTotal for reportable segments 1,485,535 1,404,790 1,337,780 15,805,245Corporate assets shared by all segments (*) 122,759 112,985 141,029 1,306,086Intersegment transactions (142,004) (155,636) (124,531) (1,510,842)

Total assets on the consolidated financial statements 1,466,290 1,362,139 1,354,278 15,600,489

(*) Corporate assets shared by all segments mainly comprise fixed assets not attributed to reportable segments.

Millions of yenYear ended March 31, Year ended March 31, Year ended March 31,

2013 2012 2011 2013 2012 2011 2013 2012 2011

Other items Total for reportable segments Adjustments (*) Amounts reported on the consolidated financial statements

Depreciation/amortization ¥44,250 ¥45,865 ¥48,047 ¥4,135 ¥3,036 ¥2,229 ¥48,385 ¥48,901 ¥50,276Increase in property, plant and equipment and intangibles

64,795 56,733 49,591 13,829 7,186 5,743 78,624 63,919 55,334

(*) Adjustment is mainly due to fixed assets not attributed to reportable segment.

Thousands of U.S. dollarsYear ended March 31, Year ended March 31, Year ended March 31,

2013 2013 2013

Other items Total for reportable segments Adjustments Amounts reported on the consolidated financial statements

Depreciation/amortization $470,794 $43,994 $514,788


689,381 147,133 836,514

(e) Related information

(i) Sales by geographic region

Net sales in the years ended March 31, 2013, 2012 and 2011 were as follows:

Net sales are based on the clients’ location and classified according to nation or geographical region.


Japan ¥616,220 ¥567,044 ¥558,126 $6,556,229United States 272,531 237,941 236,572 2,899,574Europe 97,540 123,317 87,162 1,037,770Asia 202,704 239,627 224,685 2,156,655Other areas 99,886 135,849 120,404 1,062,730Total ¥1,288,881 ¥1,303,778 ¥1,226,949 $13,712,958

Property, plant and equipment


Japan ¥259,212 ¥238,733 $2,757,867United States 21,298 19,450 226,598Europe 2,618 2,104 27,854Asia 21,638 13,610 230,215Other areas 1,026 853 10,918Total ¥305,792 ¥274,750 $3,253,452

Net sales

Clients 2013 2012 Related segments

Ministry of Defense 193,685 million yen($2,060,697 thousand)

179,786 million yen Ship & Offshore Structure, Aerospace, Gas Turbines &

Machinery, etc.

26. Related party transactions

(a) Related party transactions for the years ended March 31, 2013 and 2012 were as follows:

(ii) Information by major clients


Nonconsolidated subsidiaries and affiliates of the Company

Type Affiliate of the Company

Name Commercial Airplane Co., Ltd.

Location Chiyoda-ku, Tokyo

Capital or investment ¥10 million ($106 thousand)

Business or position Sales of transportation machinery

Rate of ownership (%) Directly 40%

Description of relationship Order of Company products

Details of transactions Sales of Company products

Amount of transactions ¥85,325 million ($907,809 thousand)

Account Trade receivables

Ending balance ¥25,957 million ($276,167 thousand)


Nonconsolidated subsidiaries and affiliates of the Company

Type Affiliate of the Company

Name Commercial Airplane Co., Ltd.

Location Chiyoda-ku, Tokyo

Capital or investment ¥10 million

Business or position Sales of transportation machinery

Rate of ownership (%) Directly 40%

Description of relationship Order of Company products

Details of transactions Sales of Company products

Amount of transactions ¥59,265 million

Account Trade receivables

Ending balance ¥26,229 million

82Kawasaki Report 201381 Independent Auditor's ReportNotes to the Consolidated Financial Statements Kawasaki Report 2013

(b) A summary of the total financial information of all affiliates (17 companies) (14 in 2012) which was the basis for calculating the equity in income of nonconsolidated affiliates, including that of Nantong COSCO KHI Ship Engineering Co., Ltd., which is a significant affiliate, for the years ended March 31, 2013 and 2012 is as follows:


Current assets ¥156,902 ¥102,806 $1,669,347Fixed assets 153,656 71,760 1,634,812Current liabilities 154,814 84,489 1,647,132Long-term liabilities 25,407 11,710 270,315Net assets 130,337 78,367 1,386,711Net sales 197,764 161,212 2,104,096Minority interests in net income of consolidated subsidiaries 20,339 19,387 216,395Total net income 17,305 16,188 184,115

27. Subsequent events

On June 26, 2013, the following appropriation of nonconsolidated retained earnings was approved at the ordinary meeting of shareholders of the Company:

Millions of yen

Cash dividends (¥5.0 per share) ¥8,358

28. Other matters

(Quarterly financial information)

Millions of yenYear ended March 31, 2013 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter

Net sales ¥283,530 ¥574,999 ¥885,896 ¥1,288,881


Net income 6,030 12,429 19,343 30,864

yen

Net income per share - basic ¥3.6 ¥7.4 ¥11.5 ¥18.4

Thousands of U.S. dollarsYear ended March 31, 2013 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter

Net sales $3,016,597 $6,117,661 $9,425,428 $13,712,958


Net income 64,155 132,237 205,798 328,375

U.S. dollars

Net income per share - basic $0.03 $0.07 $0.12 $0.19

Managing Executive Officers

Directors

Executive Officers

Classified by Type of Shareholder

Major Shareholders

Classified by Number of Holdings

Corporate Auditors

Individuals and Others34.54%

Financial Institutions33.53%

Domestic Corporations9.95%

Securities Companies1.48%

ForeignCorporations20.47%

Less than 1,000 shares0.13%

1,000–4,999 shares10.08%

5,000–9,999 shares5.97%

10,000–499,999 shares18.65%

500,000–999,999 shares2.57%

1,000,000–4,999,999 shares11.97%

5,000,000 shares and above50.59%

Masahiro Ibi

Munenori Ishikawa

Shigehiko Kiyama

Shigeru MurayamaPresident

* Representative Director † Executive Officer

Kyohei MatsuokaSenior Executive Vice President

Hiroshi TakataSenior Executive Vice President

Minoru Makimura

Tatsuyoshi OgushiCorporate Auditor

Yuji MurakamiCorporate Auditor

Michio OkaOutside Corporate Auditor

Nobuyuki FujikakeOutside Corporate Auditor

Akio MurakamiSenior Vice President

Yoshihiko MoritaOutside Director

Makoto SonodaSenior Vice President

Joji Iki Eiji Inoue Yoshinori Kanehana

Tokyo, Osaka and Nagoya Stock ExchangesStock Listings

3,360,000,000 sharesTotal Number of Shares Authorized

1,671,892,659 sharesTotal Number of Shares Issued

146,087 personsNumber of Shareholders

JuneAnnual General Meeting of Shareholders

Shareholder Number of Shares Owned

Japan Trustee Services Bank, Ltd. (Trust Account)

Nippon Life Insurance Company

Mizuho Bank, Ltd.

JFE Steel Corporation

The Master Trust Bank of Japan, Ltd. (Trust Account)

Kawasaki Heavy Industries, Ltd. Kyoueikai

Kawasaki Heavy Industries Employee Stock Ownership Association

SSBT OD05 OMNIBUS ACCOUNT - TREATY CLIENTS

85,654,000

80,797,000

57,516,659

57,443,650

56,174,400

35,916,192

34,361,700

33,981,217

27,838,589

26,828,453

496,511,860

Percentage

5.12%

4.83%

3.44%

3.43%

3.35%

2.14%

2.05%

2.03%

1.66%

1.60%

29.69%

Tokio Marine & Nichido Fire Insurance Co., Ltd.

Sumitomo Mitsui Banking Corporation

Total

Takeshi Sugawara

Shinsuke Tanaka

Yoshizumi Hashimoto

Takafumi Shibahara

Minoru Akioka

Yukinobu Kono

Masafumi Nakagawa

Atsuhiko Yamanaka

Kaoru Kawabe

Kazuo Hida

Makoto Ogawara

Yugo Nakagami

Hirokazu Komaki

Shiro Nakabayashi

Toshiyuki Kuyama

Kenji Tomida

Genichi Abe

Kazuo Ota

Masayoshi Maeda

Hiroji Iwasaki

Koji Kadota

Yasuhiko Hashimoto

Tatsuya Watanabe

Takeshi Ohata

*† *† *†

*†

*†

*† *†

*†

†

Senior Vice PresidentSenior Vice President Senior Vice President Senior Vice President

83 84Kawasaki Report 2013 Kawasaki Report 2013Directors, Corporate Auditors and Executive Officers Stock Information

Stock Information (As of March 31, 2013)Directors, Corporate Auditors andExecutive Officers (As of June 26, 2013)

Base Introduction

Tokyo Head Office

Kobe Head Office

Corporate Technology Division

Sapporo Office

Sendai Office

Nagoya Office

Osaka Office

Hiroshima Office

Fukuoka Office

Okinawa Office

Offices in Japan

Gifu Works

Nagoya Works 1

Nagoya Works 2

Kobe Works

Hyogo Works

Seishin Works

Nishi-Kobe Works

Akashi Works

Kakogawa Works

Harima Works

Sakaide Works

Production Bases in Japan

KCM Corporation

KCMJ Corporation

Kawasaki Trading Co., Ltd.

Kawasaki Hydromechanics Corporation

Kawasaki Life Corporation

Kawasaki Technology Co., Ltd.

Benic Solution Corporation

Nippi Kosan Co., Ltd

Kawaju Service Co., Ltd.

K Career Partners Corp.

Kawaju Support Co., Ltd.

Kawaju Marine Engineering Co., Ltd.

Kawasaki Techno Wave Co., Ltd.

KHI JPS Co., Ltd.

Alna Yusoki-Yohin Co., Ltd.

Kawasaki Rolling Stock Technology Co., Ltd.

Kawasaki Rolling Stock Component Co., Ltd.

Kansai Engineering Co., Ltd.

Sapporo Kawasaki Rolling StockEngineering Co., Ltd.

Nichijo Manufacturing Co., Ltd.

NIPPI Corporation

Major Subsidiaries in Japan

Kawaju Gifu Engineering Co., Ltd.

KGM Co., Ltd.

Kawaju Gifu Service Co., Ltd.

Nippi Skill Corporation

Kawasaki Thermal Engineering Co., Ltd.

Kawasaki Machine Systems, Ltd.

Kawaju Akashi Engineering Co., Ltd.

Kawasaki Prime Mover Engineering Co., Ltd.

Kawasaki Naval Engine Service, Ltd.

Earth Technica Co., Ltd.

Kawasaki Engineering Co., Ltd.

KEE Environmental Service, Ltd.

KEE Environmental Construction Co., Ltd.

Kawaju Facilitech Co., Ltd.

Earth Technica M&S Co., Ltd.

Kawasaki Motors Corporation Japan

Technica Corp.

K-Tec Corp.

Union Precision Die Co., Ltd.

AutoPolis

Kawasaki Robot Service, Ltd.

Beijing Office

Taipei Office

Delhi Office

Moscow Office

Overseas Offices

KCMA Corporation

Kawasaki Trading do Brasil Ltda.

Kawasaki do Brasil Indústriae Comércio Ltda.

Kawasaki Heavy Industries (U.S.A.), Inc.

Kawasaki Heavy Industries (U.K.) Ltd.

Kawasaki Hydrogen EngineeringAustralia Pty Ltd.

Kawasaki Heavy IndustriesMiddle East FZE

Kawasaki Heavy Industries (Singapore) Pte. Ltd.

Kawasaki Trading (Shanghai) Co., Ltd.

Kawasaki Heavy Industries Management (Shanghai) Ltd.

KHI (Dalian) Computer Technology Co., Ltd.

Estaleiro Enseada do Paraguaçu S.A.

Nantong COSCO KHI ShipEngineering Co., Ltd.

Dalian COSCO KHI Ship Engineering Co., Ltd.

Kawasaki Motors ManufacturingCorp., U.S.A.

Kawasaki Rail Car, Inc.

Qingdao Sifang Kawasaki Rolling Stock Technology Co., Ltd.

Overseas Subsidiaries & Affiliates

Kawasaki Gas Turbine Europe GmbH

Kawasaki Gas Turbine Asia Sdn. Bhd.

Kawasaki Heavy Industries (Europe) B.V.

Kawasaki Heavy Industries (H.K.) Ltd.

Wuhan Kawasaki Marine Machinery Co., Ltd.

KHI Design & Technical Service Inc.

Kawasaki Heavy Industries Machinery Trading (Shanghai) Co., Ltd.

Anhui Conch Kawasaki Engineering Co., Ltd.

Anhui Conch Kawasaki Equipment Manufacturing Co., Ltd.

Anhui Conch Kawasaki EnergyConservation EquipmentManufacturing Co., Ltd.

Shanghai COSCO Kawasaki Heavy Industries Steel Structure Co., Ltd.

Kawasaki Motors Corp., U.S.A.

Canadian Kawasaki Motors Inc.

Kawasaki Motores do Brasil Ltda.

Kawasaki Motors Europe N. V.

Kawasaki Motors Pty. Ltd.

Kawasaki Motors Enterprise(Thailand) Co., Ltd.

KHITKAN Co., Ltd.

P.T. Kawasaki Motor Indonesia

Kawasaki Motors (Phils.) Corporation

India Kawasaki Motors Pvt. Ltd.

Changzhou Kawasaki and Kwang YangEngine Co., Ltd.

Kawasaki Precision Machinery (U.S.A.), Inc.

Kawasaki Robotics (U.S.A.), Inc.

Kawasaki Precision Machinery (UK) Ltd.

Kawasaki Robotics (UK) Ltd.

Kawasaki Robotics GmbH

Kawasaki Machine Systems Korea, Ltd.

Flutek, Ltd.

Wipro Kawasaki Precision MachineryPvt. Ltd.

Kawasaki Precision Machinery(Suzhou) Ltd.

Kawasaki Precision Machinery Trading (Shanghai) Co., Ltd.

Kawasaki Chunhui Precision Machinery (Zhejiang) Ltd.

Kawasaki Robotics (Tianjin) Co., Ltd.

Kawasaki Robotics (Kunshan) Co., Ltd.

(As of June 30, 2013)

85 86Kawasaki Report 2013 Base Introduction

“GIGACELL,” “K-STAR EXPRESS,” “EFSET,” “efSET” logo, “JET SKI,” “Jet Ski,” “jet ski” logo,

“JET SKi” logo, “Ninja” and “Ninja” logo are trademarks or registered trademarks of

Kawasaki Heavy Industries, Ltd. in Japan, the United States and other countries.

Report 2013 - Kawasaki Heavy Industries · This report was created using environment-friendly waterless ... also commissioned with engineering and project ... Urea manufacturing ...

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